Oil weekly recap, December 30 – January 3

West Texas Intermediate crude fell on Friday, marking the worst weekly performance in 19 months after a report by the Energy Information Administration showed weak demand in the worlds top consumer and a jump in US refined product inventories. Prices were also pressured as a recent series of upbeat US data fueled speculations for an extended reduction in Feds monetary stimulus and strengthened the dollar. Hopes for a reopening of a major oilfield in western Libya further weighed on the market.

On the New York Mercantile Exchange, WTI crude for delivery in February fell by 1.6% on Friday to settle at $93.96 per barrel. Prices held in a range between a one-month low of $93.86 and $95.74 per barrel. The US benchmark plunged 3.3% on Thursday and settled the week 6.3% lower, the steepest weekly fall since June 2012.

Meanwhile on the ICE, Brent futures for settlement in February fell by 0.8% on Friday to settle at $106.89 per barrel. Prices shifted in a daily range between $106.79, the lowest since November 13th, and $108.64 per barrel. The European benchmark slid by 2.8% on Thursday and closed the week 4.6% lower. Brents premium to its US counterpart was at $12.93.

US crude fell on Friday after the Energy Information Administration reported that total fuel demand in the US fell by 7.2% to 19 million barrels per day in the seven days through December 27, the lowest since October. Distillate fuel consumption dropped by 21% to 3.31 million bpd, the weakest since July 2003.

Refineries utilization fell to 92.4% last week, down by 0.3% from a week earlier. Gasoline production decreased, while distillate fuel output increased, averaging 9.1 million and 5.2 million barrels per day, respectively.

Poor consumption levels led to a much-larger-than-expected build in distillate fuel inventories. Stockpiles rose by 5.04 million last week to 119.1 million, exceeding multiple times the median estimate of eight analysts surveyed by Bloomberg for a moderate gain of 750 000 barrels. Motor gasoline inventories added 844 000 barrels and reached 220.7 million, the EIA reported, beating analysts expectations for a 1.38 million build. Supplies however remained in the upper half of the average range for this time of the year.

The report also showed that crude inventories, usually the most watched reading in EIAs report, fell by 7.01 million barrels in the seven days to December 27, a fifth consecutive weekly decline. Participants in Bloombergs survey had projected a 2.83 million barrel drop. Oil prices however didnt receive support by the larger-than-expected decline as analysts saw in it a deliberate withdrawal in order to reduce taxes at year-end.

Gene McGillian, analyst at Tradition Energy in Stamford, Connecticut, said, cited by CNBC: “This is the continued drawing-down for year-end book-keeping purposes. I think going forward, all this oil starts showing up again.”

“The big build in distillate fuel is the main feature of the report,” said John Kilduff, partner at Again Capital LLC. “Distillate is the seasonal leader and strong demand for it had been driving prices higher. The demand appears to have fallen away.”

Inventories at Cushing, Oklahoma, the biggest US storage hub and delivery point for NYMEX-traded contracts, fell by 0.55 million barrels to 39.6 million.

Also weighing on prices, US crude imports fell to the lowest since 1998 as domestic output surged to the highest since 1988, thanks to the shale oil boom. US crude production rose by 10 000 bpd to 8.12 million, which pushed inbound shipments down. The EIA reported that crude imports averaged 7.5 million barrels, down by 40 000 bpd from a week earlier. Over the last four weeks, imports fell by 1.1% to an average 7.41 million bpd, the least since January 1998.

Fed stimulus speculations

Oil on both sides of the Atlantic was also pressured after a recent series of upbeat US data spurred speculations the Fed might extend the reduction of its monetary stimulus program sooner-than-expected, which lifted the US dollar.

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 week’s reading received an upward revision to 341 000, up from previously estimated at 338 000.

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 strong data strengthened the US dollar, which laid pressure on dollar-denominated commodities. The US dollar index, which tracks the greenback’s performance against a basket of six major currencies, settled at 80.95 on Friday, up 0.24% on the day. Prices swung between a 1-1/2 month high of 81.06 and 80.64. The March contract surged 0.5% on Thursday and settled the week 0.7% higher. 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.

Libyan output

Also fanning negative sentiment, Libya prepared to reopen a major oilfield in the west as workers announced on Thursday they would cease protests at the Al Sharara site. The action however will be resumed in two weeks, if their requests are not met, Muftah Lamin, a spokesman for the protesters, said on Thursday.

Output in Libya, holder of Africa’s biggest crude reserves, remained at around 220 000 bpd in December, 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.

Olivier Jakob of Petromatrix in Zug, Switzerland, said for CNBC: “What has really failed to materialize so far has been a restart in the east, where you have autonomy groups that are controlling the ports. In the west, its a different situation because it was a protest at the field, but the port is actually open. If they restart production it can really move to the market.”