WTI extends losses on bearish EIA report, employment data

Both West Texas Intermediate and Brent benchmarks extended losses on Tuesday after the Energy Information Administration said yesterday that U.S. crude oil stockpiles rose more than expected, hitting a 15-week high. Market players remained wary ahead of the release of Septembers highly anticipated non-farm payrolls and unemployment rate, delayed from October 4 due to the partial government shutdown. Expectations that the Federal Reserve will defer scaling back its quantitative easing program limited losses.

On the New York Mercantile Exchange, WTI crude for December delivery slipped 0.27% to $99.41 per barrel at 6:39 GMT. The contract fell to a session low of $99.27 earlier in the day, the weakest level since July 1, while days high stood at $99.65 per barrel. The American benchmark fell by 1.7% on Monday and widened its discount to Brent to more than $10 per barrel, the most since April.

On the ICE, Brent futures for delivery in December were almost unchanged at $109.72 per barrel, down 0.06% on the day. Prices held in range between days high and low of $109.86 and $109.65 per barrel respectively. The European benchmark fell by 0.2% on Monday and extended its weekly decline to 0.3% on Tuesday.

Oil prices edged lower after the Energy Information Administration reported yesterday that U.S. crude oil inventories rose by 4.0 million barrels in the week ended October 11, reaching the highest level in three months at 374.5 million barrels. Analysts surveyed by Bloomberg expected a 3 million gain. Refineries’ utilization rose to 86.2% from 86% in the week ended October 4, defying projections for a drop to 85.5%. U.S. crude imports averaged 8.0 million barrels per day, down 39 000 bpd from a week earlier.

The government agency also reported that both motor gasoline and distillate fuel production increased in the week ended October 11, averaging 9.3 million and 4.8 million barrels per day respectively. Motor gasoline inventories fell by 2.6 million barrels but remained above the upper range for this time of the year, beating analysts’ expectations for a drop of 1 million barrels. Distillate fuel supplies decreased by 1.8 million barrels and remained near the lower limit of the average range but underperformed projections for a 2 million drop.

Inventories at Cushing, Oklahoma, the biggest U.S. storage hub and delivery point for NYMEX-traded contracts rose by 366 000 barrels to 33 million, the first increase since July, after losing 17 million barrels since June 28.

Analysts surveyed by Bloomberg expect the American benchmark to extend losses through the end of the year as a thaw in relations between Iran and Western major powers will likely erode its geopolitical premium, while political divides in Washington remained unresolved after the latest negotiations between Democrats and Republicans. According to the sixteen participants polled, WTI will fall by another $2 by December 31.

Ken Hasegawa, a commodity sales manager at Newedge Japan, said for CNBC: “There are a lot of stocks of crude oil in the U.S. and all over the world and there is still a lot of uncertainty on a U.S. economic recovery as there are several issues with the debt ceiling. Fundamentally the market is not so strong but technically WTI could rebound today if the employment data is better than expected.”

The most anticipated September unemployment rate and non-farm payrolls will be released on Tuesday at 12:30 GMT, coupled with average hourly earnings and average weekly hours. The report will not reveal any information about the government shutdown but it will be the final employment data the Fed will use before FOMCs October 29-30 meeting. Some analysts expect tapering to take part in December but many have begun to speculate that we won’t see any deceleration before 2014.

Economists polled by Reuters project payrolls to have surged by 180 000 in September following a rise of 169 000 in August, while the unemployment rate is expected to have remained flat at 7.3%. Worse than expected data will support broad expectations that the Federal Reserve will refrain from tapering its monetary stimulus before 2014, benefiting dollar-denominated commodities, but will also pressure oil prices on the demand side.

A senior Federal Reserve official said on Monday that it will be tough for the central bank to take a decision to start scaling back its bond purchases in December, given the lost output during the 16-day government shutdown and the revisit of the same issues in February.

Chicago Fed President Charles Evans said for CNBC: “October is a tough one. December? I think we need a couple of good labor reports and evidence of increasing growth, GDP growth. It is probably going to take a few months to sort that one out. It is very difficult to feel confident in December given that we’re going to repeat part of what just took place in Washington.”