WTI futures hold near 1-month low on Fed stimulus outlook, inventories data in focus

West Texas Intermediate fell to the lowest in a month as upbeat data from the US released on Thursday raised speculations that the Federal Reserve may soon curb further its quantitative easing program, a month after the central bank decided to begin scaling back its bond purchases. Also weighing on the oil market, Libyan government officials said the African country is preparing to reopen one of its largest oilfields within three days. Losses however remained in check amid expectations the Energy Information Administration will report a fifth consecutive decline in US crude inventories, despite a projected gain in supplies at Cushing, Oklahoma.

On the New York Mercantile Exchange, WTI crude for settlement in February traded at $95.52 per barrel at 8:00 GMT, up 0.08% on the day. Prices slid to a 1-month low of $95.20 per barrel earlier in the session, while days high stood at $95.74. Prices fell by more than 3% on Thursday, the most since November 2012, and were down 4.6% on weekly basis on Friday.

Meanwhile on the ICE, Brent futures for delivery in February rose by 0.34% to $108.15 per barrel by 8:03 GMT. Prices shifted in a daily range between days high and low of $108.22 and $107.79, the weakest level in six weeks. The European benchmark slid 2.8% on Thursday, the most since late June, but trimmed its weekly decline to 3.6% following Fridays rebound.

US crude fell by more than 3% on Thursday, the most since November 2012, after strong economic numbers from the US, the worlds top consumer, spurred speculations the Federal Reserve might extend the reduction of its monthly bond purchases in the coming months.

The Department of Labor reported that the number of people who filed for initial unemployment benefits in the week ended December 28 fell to 339 000, beating expectations for a rise to 342 000. This was the lowest level in a month. The preceding weeks reading received an upward revision to 341 000, up from previously estimated at 338 000.

The four-week moving average of claims, which irons out weekly volatility, rose by 8 500 to 357 250 in the preceding week. Americans who continued to receive unemployment aid, or the so-called continuing jobless claims, fell by 98 000 to 2.83 million in the week ended December 21. Those people who have exhausted traditional aid and are receiving extended benefits under federal programs jumped by 58 000 to 1.39 million in the week ended December 14.

Meanwhile, the Institute for Supply Management reported that manufacturing activity in the US expanded at the second fastest pace for the year in December, albeit retreating slightly from November, as new orders grew by the most in nearly four years. The ISM manufacturing PMI posted at 57.0, beating analysts projections for a drop to 56.9 after jumping to 57.3 in November.

The strong reading was based on a solid expansion in new orders. The New Orders Index rose in December by 0.6% to 64.2, the highest reading since April 2010 when it registered 65.1. Production also expanded, although at a slower pace, with the production index posting at 62.2, down from 62.8 in November. The rising activity drove employment in the sector to the highest in 2-1/2 years. The Employment Index registered 56.9, an increase of 0.4% compared to Novembers reading of 56.5. Decembers employment reading was the highest since June 2011 when the Employment Index stood at 59.0.

The strong data strengthened the US dollar, which laid pressure on dollar-denominated commodities. The US dollar index, which tracks the greenbacks performance against a basket of six major currencies, traded at 80.73 at 7:46 GMT, up 0.02% on the day. The March contract surged 0.5% on Thursday to the highest in two weeks and rose back to positive weekly territory. Strengthening of the dollar makes raw materials priced in it more expensive for holders of foreign currencies and limits their appeal as an alternative investment.

Inventories data

Oil prices however continued to draw support on expectations the EIA will report a fifth consecutive withdrawal in US crude inventories, three days after the American Petroleum Institute registered a larger-than-expected decline. Crude supplies dropped by 5.67 million barrels last week to 361.8 million, the industry-funded API said on Tuesday.

Government statistics due to be released later today are expected to show a 2.83 million drop in crude stockpiles, according to a weekly Bloomberg News survey. Motor gasoline inventories are expected to have risen by 1.38 million barrels to 221.2 million and distillate fuel supplies likely jumped by 750 000 barrels to 114.9 million.

OPEC output

Prices continued to be pressured after Libyan officials said on Thursday that Libya hopes to resume output at the El Sharara oilfield, one of the largest, in the next three days after protesters agreed to end their two-month stoppage. Analysts however remained skeptical after recent failures in talks between officials and protesters.

Output in Libya, holder of Africa’s biggest crude reserves, remained at 220 000 bpd, just a fraction from July’s average production of 1.4 million barrels per day. Ports in the eastern parts of the country remained closed after the government failed to negotiate with rebel leaders their reopening a couple of weeks ago, a deal which would have brought back online a combined capacity of more than 600 000 bpd.

Mark Keenan, head of commodities research in Asia at Societe Generale, said, cited by CNBC: “Weve had many false hopes from Libya in recent months. Until we see concrete evidence that production is actually up, I dont think we can ascribe too much importance to it.”

Weighing on prices, an Iranian official said on Tuesday after the latest round of expert-level talks between Iran and six world powers that the two counterparts will implement an agreement in January on curbing the Persian Gulf nation’s nuclear program. If the deal goes through, this would raise the prospects for the return of around 1 million bpd of Iranian oil to the global market.