WTI futures little changed ahead of ISM report, inventories data weigh

West Texas Intermediate crude was little changed on Monday after posting the biggest weekly decline since June 2012 before the Institute for Supply Management releases its December services data, poised to have marked an improvement. A larger-than-projected build in US distillate fuel supplies and domestic crude output surging to the highest since 1988 further weighed on prices. Expectations for a recovery in Libyan exports also put pressure on oil after protests at a major oilfield in the west ceased. A strong dollar and slowing growth in China also added to the drag.

On the New York Mercantile Exchange, WTI futures for settlement in February traded at $94.26 per barrel at 8:19 GMT, up 0.32% on the day. Prices shifted in a daily range between $94.30 and $93.92 per barrel. The US benchmark fell by 1.6% on Friday to $93.96 and settled the week 6.3% lower, the steepest weekly fall since June 2012.

Meanwhile on the ICE, Brent crude for the same month delivery traded at $107.29 a barrel at 8:20 GMT, up 0.36% on the day. Prices ranged between days high and low of $107.36 and $106.83 per barrel respectively. The European benchmark slid 0.8% on Friday after falling to the lowest since November 13 and closed the week 4.6% lower.

US crude recovered from some losses in early European trading on Monday but was limited on the upside as a stronger dollar and downbeat inventories data released on Friday continued to weigh. Also putting pressure on the oil market, a recent series of upbeat data and expectations for more positive readings coming later this week fueled speculations for a further reduction in Feds bond purchases in the near future.

The Institute for Supply Management will release its data on US non-manufacturing activity in December later today. The ISM Non-Manufacturing Composite index will post at 54.6, the median estimate of economists surveyed by Bloomberg showed, a rebound from Novembers 53.9 reading.

This comes after the ISM reported last week 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.

A stronger dollar also weighed. The US dollar index, which measures the greenbacks strength against a basket of six major peers, traded unchanged at 81.03 at 8:29 GMT. Prices shifted in a daily range between a 1-1/2 month high of 81.08 and 80.93. The March contract rose by 0.24% on Friday and settled the week 0.7% higher. Strengthening of the dollar makes raw materials priced in it more expensive for foreign currency holders and limits their appeal as an alternative investment.

Market players awaited the release of FOMCs December meeting protocols, due on Wednesday, Thursdays Initial Jobless Claims and Decembers Non-farm Payrolls and Unemployment rate, due on Friday. The jobless rate is projected to have remained unchanged, while payrolls rise likely eased slightly from Novembers 203 000 reading.

Ric Spooner, a chief analyst at CMC Markets in Sydney, said for Bloomberg: “It’s a pretty-heavy data week. We could be seeing a little early squaring up, people taking off short positions and taking a bit of a wait-and-see approach. Disappointment at the U.S. production and inventory figures contributed to the price decline last week.”

Inventories data

Oil prices continued to be pressured after the release of EIAs weekly inventory numbers last Friday. 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.

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.

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.

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.

The report also showed that crude inventories, usually the most watched reading in EIA’s report, fell by 7.01 million barrels in the seven days to December 27, a fifth consecutive weekly decline. Participants in Bloomberg’s survey had projected a 2.83 million barrel drop. Oil prices however didn’t receive support by the larger-than-expected decline as analysts saw in it a deliberate withdrawal in order to reduce taxes at year-end.

African output

Further pressuring the oil segment, a rare success in negotiations for Libyas Prime Minister Ali Zeidan led to the resumption of operations at Libyas El Sharara field, which is expected to increase nationwide output to around 600 000 barrels per day. That is up from Decembers 220 000 bpd level which was just a fraction from Julys 1.4 bpd output.

However, production levels remained uncertain after a different group of protesters blocked a pipeline, again in the west, which runs to the Mellitah export terminal.

Chee Tat Tan, an investment analyst at Phillip Futures in Singapore, said, cited by CNBC: “The situation in Libya will continue to be the main topic this week. We have seen some new protests going on, so the actual return of supply to world markets will depend on how well the government controls the situation.”

Meanwhile, South Sudans output also remained volatile and below full capacity following after gunfire erupted in the countrys capital Juba on Sunday, despite an agreement between the government and rebels to hold peace talks. The fighting has resulted in the death of more than 1 000 people over the last three weeks and curbed the countrys output capacity to less than 240 000 bpd.