WTI rebounds from an eight-month low ahead of US employment data, record US output weighs

West Texas Intermediate crude rebounded from an eight-month low in early European trading on Friday ahead of the release of an allegedly upbeat US employment data, which would boost demand prospects in the worlds top consumer, despite raising the prospects for a further stimulus tapering. Inventories numbers released by the EIA earlier in the week, coupled with domestic crude output rising to the highest in more than two decades continued to pressure the market. Rising Chinese imports, ongoing supply disruptions in Libya and the closure of a North Sea oilfield supported the oil market.

On the New York Mercantile Exchange, WTI crude for delivery in February traded at $92.65 per barrel at 8:46 GMT, up 1.07% on the day. Prices shifted in a daily range between $92.72 and $92.21 a barrel. The US benchmark fell to an eight-month low of $91.24 a barrel yesterday and settled the day at $91.66, the lowest close since May 1. The contract fell by more than 0.2% yesterday but trimmed its weekly decline to 1.7% following Fridays rebound.

Meanwhile on the ICE, Brent futures for settlement in February added 0.66% to trade at $107.10 per barrel at 8:47 GMT. Prices held in a range between session high and days low of $107.20 and $106.42 per barrel. The European benchmark plunged 0.8% on Thursday but erased its weekly decline following Fridays gains. Brents premium to its US counterpart was at $14.73 per barrel, based on latest closing prices.

West Texas Intermediate fell to an eight-month low after the Energy Information Administration reported yesterday that domestic crude output rose by 24 000 barrels per day to 8.15 million last week, the most since September 1988, due to the US shale oil boom.

Earlier in the week, the EIA said that motor gasoline inventories rose by 6.24 million barrels in the week ended January 3rd to 227 million, exceeding more than two times the median estimate of 10 analysts surveyed by Bloomberg for a 2.5 million increase. Distillate fuel supplies, including diesel and heating oil, jumped by 5.83 million barrels to 125 million, sharply exceeding projections for a 2.25 million build.

Total demand for refined products fell by 782 000 barrels per day to 18.2 million, the lowest level since June 9, further adding to negative sentiment.

Phil Flynn, senior market analyst at the Price Futures Group in Chicago, said, cited by Bloomberg: “The fundamentals don’t look good. Crude production continues to surge ahead and the refiners are processing this into fuel that is going into storage.”

US crude oil inventories fell by 2.68 million barrels to 357.9 million last week, a sixth consecutive weekly decline, and were near the upper limit of the average range for this time of the year. The reading came in line with analysts’ expectations for a draw of 2.75 million barrels. The drop in crude stocks however couldn’t offset the build in refined products as analysts saw it as s deliberate withdrawal to reduce taxes at year-end.

Inventories at Cushing, Oklahoma, the biggest US storage hub and delivery point for NYMEX-traded contracts, rose to 40.7 million tons, up from 39.6 million a week earlier.

Employment data

Market players are awaiting the Labor Departments December jobs report. Applications for initial unemployment aid in the week ended January 4th fell by more than expected, adding to recent upbeat numbers. Initial jobless claims dropped to 330 000 last week, outstripping projections for a decline to 335 000 form the preceding periods upward-revised reading of 345 000.

On Friday, the Labor Department is expected to report that December’s non-farm payrolls stood firm at 193 000, albeit slightly retreating from November’s 203 000, while the unemployment rate remained at November’s five-year low of 7.0%. If the readings are confirmed, or positively exceeded, this would improve demand prospects in the worlds top consumer, albeit fueling speculations for a further reduction in Feds monthly bond purchases.

Fed Chairman Ben Bernanke said on December 18 that the Fed will continue to probably do a measured reduction in the pace of purchases at each meeting. According to a Bloomberg News survey of economists conducted on December 19, policy makers will cut Fed’s stimulus in $10 billion increments over the next seven committee meetings.

Supply disruptions

Oil prices, and especially the Brent benchmark, continued to draw support on supply disruptions in Libya, holder of Africas biggest crude reserves. Libyan officials said on Wednesday that the government will stop doing business with and will sue any foreign firms that purchase oil from eastern export terminals under the control of armed autonomy groups.

Supply concerns continued to persist despite a recent partial recovery in nationwide exports. Oil Minister Abdelbari Arusi told Reuters that the country is currently producing 650 000 barrels per day, of which 510 000 bpd is being exported. Output almost tripled after creeping at little over 200 000 bpd in December following a rare negotiation success for Prime Minister Ali Zeidan to reopen the western El Sharara oilfield. The first oil from the field will be loaded onto tankers at the Zawiya port next week. Eastern ports however remain under the control of armed autonomy groups.

Also adding to oils geopolitical premium, Sudans army announced it will not form a joint force to help South Sudan protect its oil-producing regions after recent civil conflicts resulted in the death of more than a thousand people and curbed nationwide output.

Prices also received support after operator Nexen Inc. said that a 200 000-bpd Buzzard field was closed, but operations are in the process of being restarted.

John Kilduff, partner at Again Capital LLC, commented for Bloomberg: “The halt of Buzzard production gave the market a pop. Disruptions in North Sea supply have repeatedly boosted prices over the last year.”

China trade data

Also lifting prices, Chinese crude imports rose to 6.31 million barrels per day in December, up 13% from a year earlier. Inbound shipments however rose by only 4% on annual basis last year, down from a 7% increase in 2012.

Overall Chinese trade data was also mixed, adding to concerns of an economic slowdown. Exports rose by 4.3% after surging 12.7% in November, compared to projections for a 4.9% jump. Imports however outpaced expectations for a 5.3% increase and rose by 8.3%, outstripping Novembers 5.3% gain. Chinas trade balance narrowed to $25.60 billion from $33.80 billion in November, trailing projections for a drop to $31.15 billion.