WTI futures ease off 7-week high on rising US refined products, budget deal

West Texas Intermediate crude remained pressured on Thursday after falling the most in two weeks as a report by the EIA showed both motor gasoline and distillate fuel stockpiles rose much more than expected in the seven days to December 6, implying weak demand in the worlds top consumer. A larger-than-projected withdrawal in US crude inventories couldnt lift prices as investors saw the decline as a move by refiners to deplete stockpiles and avoid paying tax when they are assessed in January. Further weighing on the market, U.S. lawmakers were seen negotiating behind closed doors on a two-year budget deal which, if struck, would reinforce speculations for an earlier-than-expected Fed stimulus tapering.

On the New York Mercantile Exchange, WTI crude for delivery in January traded at $97.55 per barrel at 8:15 GMT, up 0.11% on the day. Prices shifted in a narrow days range between $97.61 and $97.32. The US benchmark lost 1.4% on Wednesday, the most since November 27, and trimmed its weekly decline to 0.2% on Thursday. Prices surged to a seven-week high of $98.75 on Tuesday.

Meanwhile on the ICE, Brent futures for settlement in the same month stood at $109.84 a barrel at 8:15 GMT, up 0.13%. Prices varied between days low and session high of $109.49 and $109.94 per barrel respectively. The European benchmark added 0.1% on Wednesday and was down little over 1.6% on weekly basis on Thursday.

The oil market was pressured after a larger-than-projected build in both gasoline and distillate fuel inventories offset a major withdrawal in crude stockpiles. The Energy Information Administration reported that total motor gasoline inventories rose by 6.7 million barrels last week, sharply exceeding the median estimate of analysts surveyed by Bloomberg News for a 2.0 million increase. At 219.1 million, supplies remained above the upper limit of the average range. Meanwhile, distillate fuel inventories jumped by 4.5 million barrels last week to 118.1 million but held in the lower limit of the average range. Analysts expected a moderate 1.18 million increase. This was the biggest gain in both the product groups since January 4.

Refineries operated at 92.6% of their operable capacity, up from 92.4% a week earlier, but trailing projections for a jump to 92.9%. Both motor gasoline and distillate fuel production picked up last week and averaged 9.0 million and 5.3 million barrels per day, respectively. This was the highest distillate fuel output since 1986.

Meanwhile, the report also showed a much steeper-than-expected withdrawal in crude supplies, which however was seen as an intentional depletion by refiners to avoid tax paying when they are assessed in January, implying demand was weaker than it seemed. The government agency said that crude supplies fell by 10.6 million barrels last week, beating analysts’ projections for a 3.0 million drop, but remained above the upper limit of the average range for this time of the year.

Stockpiles at Cushing, Oklahoma, the biggest U.S. storage hub and delivery point for NYMEX-traded contracts, jumped by 625 000 barrels to 41.2 million, the highest since July 26.

Bill O’Grady, chief market strategist at Confluence Investment Management in St. Louis, commented for Bloomberg: “The product numbers are just not that good. You are seeing a big drawdown in crude as refinery runs remain elevated, but clearly the products are not being absorbed.”

Budget deal

Prices were further pressured as a looming budget deal between US lawmakers could remove the fiscal uncertainty and fueled speculations the Federal Reserve will have another reason to consider scaling back its monthly bond purchases earlier than anticipated. Republicans in the House of Representatives were seen supporting a budget deal extending over the next two years behind closed doors, adding positive sentiment to a recent series of strong economic data from the US.

Chee Tat Tan, investment analyst at Phillip Futures in Singapore, commented for CNBC: “Passing of the budget would give the Fed one last reason to exit the stimulus programme. Expectations are creating a weaker sentiment for oil and other commodities.”

The FOMC’s October meeting minutes pointed that Federal Reserve officials may reduce their $85 billion in monthly bond purchases “in coming months” as the economy improves. Central bankers are set to reconvene on December 17-18th.

The Federal Reserve may commence scaling back its 85-billion-USD monthly asset purchases at the committee’s policy meeting on December 17th-18th rather than wait until January or March, according to 34% of economists, participated in a Bloomberg survey on December 6th. In November’s survey, 17% of respondents projected a tapering in December.

Also weighing on the market, Libyas Prime Minister Ali Zeidan said the government expects tribes to reopen three eastern ports with a combined capacity of 600 000 barrels per day this weekend, as agreed earlier in the week.

Support

Prices continued to draw support as two new pipelines are expected to relieve a supply glut at Cushing, Oklahoma. TransCanada Corp. said it began filling oil into the southern extension of its Keystone pipeline on December 7 and the company is expected to inject 3 million barrels in the coming weeks. The 700 000 bpd portion of the pipeline will relieve a supply glut at Cushing by connecting it to Port Arthur, Texas.

Meanwhile, Royal Dutch Shell advanced on Tuesday in moving a glut of light sweet oil from Texas to Louisiana after it filed tariffs with federal regulators. The pipeline should come online by the end of the year, a company spokesman said.

Also providing some support to the market, the International Energy Agency raised yesterday its estimates for next years global oil demand following the recent signs of strong economic recovery in the US. World consumption is expected to jump by 1.2 million barrels in 2014, or 1.3% up from 2013, to 92.4 million, the agency said in its monthly report, revising its previous forecast up by 240 000 bpd.