WTI futures gain a third day as US inventories seen falling, global economic recovery

West Texas Intermediate crude rose for a third day on Tuesday amid expectations a government report tomorrow will show U.S. crude oil inventories fell last week, snapping ten straight weeks of gains. Further lifting sentiment, manufacturing activity in the worlds biggest economy rose by the most in 2-1/2 years, the Institute for Supply Management said on Monday, a day after Chinas National Bureau of Statistics reported factory growth in the Asian nation remained at an 18-month high. Better-than-expected manufacturing PMIs throughout Europe also boosted demand prospects.

On the New York Mercantile Exchange, WTI crude for delivery in January rose by 0.28% to $94.09 per barrel by 8:26 GMT. Prices jumped to a 1-week high of $94.24 during Asian trading after hitting days low of $93.82. The U.S. benchmark rose by 1.3% on Monday and extended its weekly advance following Tuesdays gains.

Meanwhile on the ICE, Brent futures for settlement in January were mostly unchanged at $111.53 at 8:27 GMT, up 0.08% on the day. Prices held in a narrow range between days high and low of $111.72 and $111.38 a barrel. The European benchmark rose to an 11-week high of $112.31 per barrel on Monday after it settled November 1% higher, supported by supply outages in some OPEC members.

Oil prices continued to draw support by upbeat manufacturing data from the U.S., China and Europe, which indicated a sustainable global economic recovery. The Institute for Supply Management reported yesterday that manufacturing growth in the U.S. accelerated to the highest in 2-1/2 years. The ISM Manufacturing index surged to 57.3, defying analysts projections for a decline to 55.0 from 56.4 in October.

The report showed activity in the manufacturing sector expanded for a sixth consecutive month and the overall economy grew for the 54th straight month. The new orders, production, employment and inventories sub-indexes also advanced, while supplier deliveries slowed.

The New Orders Index increased in November by 3% to 63.6 and the Production Index jumped by 2% to 62.8. The Employment Index posted at 56.5%, an increase of 3.3% compared to Octobers reading of 53.2. This reflects the highest level since April 2012 when the Employment Index registered 56.8%. Supplier deliveries fell to 53.2 from Octobers 54.7.

ISMs report comes after China’s National Bureau of Statistics said on Sunday that the nation’s manufacturing Purchasing Managers’ Index was unchanged at 51.4 in November from a month earlier, which was an 18-month high, defying analysts’ projections for a decline to 51.1.

The better-than-expected reading was largely based on firm domestic and foreign demand. A gauge of output rose to 54.5 from 54.4 in October, while new export orders jumped to 50.6 from 50.4. An index measuring employment gained for a second month to 49.6, the strongest reading since March.

A separate private survey also showed better-than-expected manufacturing activity, confirming the government statistics. The Chinese HSBC Manufacturing PMI jumped to 50.8 in November from 50.4 in October, the second highest reading in eight months, beating analysts’ predictions for a minor advance to 50.5.

The report, prepared by HSBC and Markit Economics, signaled a further improvement of operating conditions, although marginal. Output and total new orders increased at the fastest rates in eight months, the survey revealed, but renewed job cuts led to a solid increase in outstanding businesses, offsetting last month’s slight expansion in payrolls. However, the job shedding was only marginal with some panellists citing down-sizing policies and the non-replacement of voluntary leavers.

Yusuke Seta, a commodity sales manager at Newedge in Tokyo, commented for CNBC: “Demand has been steadily growing in the United States, and Chinas economy is recovering. We could see a further increase in demand next year.”

Also fanning positive sentiment for demand prospects, manufacturing activity in the Euro zone exceeded projections and grew further in November. The single currency blocs manufacturing PMI posted at 51.6, surpassing expectations to remain flat at 51.5. Growth picked up in Germany and Italy, while France marked a smaller contraction. Spain disappointed by falling below the neutral level. At 48.6, the countrys manufacturing sector shrank for the first time since July, defying analysts anticipations for a jump to 51.3 from Octobers reading of 50.9.

Meanwhile, the Chartered Institute of Purchasing and Supply reported that manufacturing activity in Great Britain grew at the fastest pace in 2-1/2 years. The CIPS manufacturing index surged to 58.4 last month, confounding projections to fall to 56.2 from Octobers upward revised reading of 56.5.

Inventories data

Oil prices also drew support on expectations the Energy Information Administration will report tomorrow that U.S. crude stockpiles snapped 10 weeks of gains in the seven days through November 29. According to a weekly Bloomberg News survey of analysts, crude oil inventories probably fell by 700 000 barrels last week as refinery utilization likely picked up. Refineries are projected to have operated at 90.1% of their operable capacity, up 0.7% from the preceding period. Motor gasoline supplies might have jumped by 1.25 million, while distillate fuel inventories are expected to have declined by 1.15 million barrels.

The industry-funded American Petroleum Institute will release its separate private report later on Tuesday. Its numbers however are considered as less reliable than EIAs statistics as they are based on voluntary information from operators of refineries, pipelines and bulk terminals, while the government requires reports to be filed with the EIA.

OPEC target likely intact

Members from the Organization of the Petroleum Exporting Countries are due to meet on Wednesday in Vienna to reassess the groups production target. Broad market expectation call for no change in OPECs target amid supply outages in Nigeria and ongoing protests in Libya, which have cut the countrys output to a fraction of its capacity.

According to Reuters, protests at Libyan oilfields curbed the African country’s production to 350 000 bpd in November, while it further fell to 250 000 bpd at the end of the month. The nation pumped an average of 450 000 barrels of oil per day in October, down from 1.45 million bpd a year earlier.

Ministers from Saudi Arabia and Algeria indicated on Monday the group was likely to keep its 30 million bpd production target on December 4, in consonance with projections.

Saudi Arabian Oil Minister Ali al-Naimi said, cited by CNBC: “The market is in the best situation it can be, demand is great, economic growth is improving.”

Market players also awaited the release of crucial economic data from the U.S. later in the week to gauge demand prospects and further assess Feds tapering timetable. Due to be released on Wednesday are the U.S. new homes sales, ISM services sector report, trade balance and the ADP Employment Change, which will give preliminary information before Fridays keenly awaited non-farm payrolls and unemployment rate. On Thursday, the Commerce Department may revise the third quarter economic growth to 3.1%, up from initially estimated in October at 2.8%, while the Labor Department may report last weeks initial jobless claims rose at a moderate pace.