WTI futures ease off 2-month high on profit taking, US economy outlook

West Texas Intermediate crude eased off Thursdays two-month high as investors took profits following the previous sessions 1% gain when ongoing supply outages in Libya and refinery strikes in France boosted imports demand. Prices drew further support after the American Petroleum Institute said US petroleum products consumption jumped to the highest November level in six years, a day after the EIA reported a third consecutive weekly decline in US crude inventories. Despite strengthening the dollar, Feds decision to curb its stimulus program starting January suggested robust economic recovery in the worlds top consumer, brightening demand outlook.

On the New York Mercantile Exchange, WTI crude for settlement in February traded at $98.78 per barrel at 8:10 GMT, down 0.27% on the day. Prices shifted in a narrow daily range between $98.90 and $98.66 a barrel. The US benchmark surged to a two-month high of $99.48 per barrel on Thursday and settled the day nearly 1% higher but trimmed its weekly advance to 2.4% after Fridays drop.

Meanwhile on the ICE, Brent futures for settlement in the same month stood at $110.24 per barrel at 8:10 GMT, down 0.05% on the day. Prices ranged between days high and low of $110.30 and $109.88 per barrel. The European benchmark jumped to a 1-1/2-week high of $110.53 a barrel on Thursday and closed the day 0.7% higher but cut its weekly advance to 1.3% on Friday.

Oil prices eased on Friday as investors sold contracts and took profits following the biggest price gain in more than a week yesterday.

Demand, inventories

WTI drew support after the American Petroleum Institute reported on Thursday US demand for petroleum products jumped to 19.4 million barrels per day in November, up 4.9% from a year earlier, marking the strongest November in six years. This comes after the Energy Information Administration said a day earlier that US crude stockpiles slipped for a third straight week.

Crude stockpiles fell by 2.94 million barrels in the seven days to December 13 and have declined by 18 million over the past three weeks.

Inventories at Cushing, Oklahoma, the biggest US storage hub and delivery point for NYMEX-traded contracts, fell by 0.6 million barrels to 40.6 million from the preceding week and were well beneath last year’s 47.0 million during the comparable period.

Refinery utilization dropped to 91.5%, down from 92.6% from the previous week. Motor gasoline production jumped, while distillate fuel output decreased, averaging 9.3 million and 5.0 million barrels per day, respectively.

Total gasoline inventories rose by 1.3 million barrels in the seven days through December 13 to 220.5 million, outperforming projections for a 1.5 million build. Gasoline consumption surged 8% to 9.02 million barrels per day, the first increase in six weeks. Distillate fuel inventories, which include diesel and heating oil, fell by 2.1 million barrels to 116 million, defying projections to remain flat.

Economy outlook

The oil market continued to draw support after Feds decision to reduce its monthly bond purchases reinforced speculations that the US economy fares well and its recovery seems sustainable, thus brightening oils demand outlook. Although Feds move caused a surge in the dollar, the tapering decision favors the energy sector in the long-term.

Michael McCarthy, chief market strategist at CMC Markets in Sydney, said, cited by CNBC: “The Feds moves yesterday are clearly an endorsement of growth in the U.S. economy and thats important for global energy demand.”

Prices received some pressure on Thursday after the US Department of Labor reported an unexpected increase in the number of people who filed for initial unemployment benefits last week. Initial Jobless Claims surged to 379 000 in the week ended December 14th, defying projections for a drop to 332 000 from the preceding periods upward revised 369 000.

Meanwhile, the National Association of Realtors reported that home resales fell for a third straight month to a one-year low in November. Existing home sales slid to 4.9 million, trailing projections for a drop to 5.03 million from Octobers 5.12 million used homes sold.

Despite raising concern over the actual recovery of the US labor and housing market, yesterdays data couldnt shift the overall positive sentiment, which kept oil on the upside.

Fed’s balance sheet has swelled to almost $4 trillion as an attempt to revive the US labor market and put millions of unemployed Americans back to work. The central bank’s asset purchases will be divided between $40 billion in Treasuries and $35 billion in mortgage bonds, Bernanke said.

Market players are now awaiting a confirmation of the US third quarter growth, due later today. The final Q3 Gross Domestic Product is expected to stand at 3.6%, confirming the revised reading. Personal Consumption Expenditures are projected to have risen by an annualized 1.4% in the three months through September, while the core value will likely post at a 1.5% increase, matching the previous quarter.

Global supply

Prices continued to draw support after the Libyan government failed to arrange a reopening of three key export terminals in Eastern Libya during the weekend, which could have brought a combined capacity of 600 000 bpd back online.

Ibrahim Al Jedran, a Libyan rebel leader, said on Sunday that the ports of Es Sider, Ras Lanuf and Zueitina will remain closed after the official government rejected his demands to share oil revenue with his self-proclaimed government. Jerdan had signaled that the eastern region known as Cyrenaica may sell crude without approval, if his terms were not met, leaving Libya’s current nationwide exports at 110 000 bpd from five ports under government control. Output amounted to 210 000 barrels per day last month, down from 1.55 million bpd in 2010.

Investors are also keeping a close watch on the expert-level talks between Iran and six world powers which resumed on Thursday, aiming to implement the recently struck groundbreaking deal on curbing the Persian Gulf nations disputed nuclear program. A possible lift of international sanctions against Iran will bring back as much as 1 million barrels of oil per day to the global market.

In France, striking workers closed a fourth Total refinery on Thursday, raising the capacity offline to around 840 000 barrels per day, boosting demand for distillate imports.