WTI futures hold near two-week high on bullish inventories data

West Texas Intermediate held near the highest level in almost two weeks after rising by the most in a month and a half on Wednesday following an unexpectedly bullish inventories report by the EIA. Further evidence of strength in the US economy boosted demand prospects. The oil market however continued to be pressured by fears of lifting Western sanctions against Iran as diplomats continued to achieve progress on curbing the Islamic republics nuclear program. An improvement in Libyan output also weighed.

On the New York Mercantile Exchange, WTI crude for delivery in March traded at $94.19 per barrel at 7:33 GMT, down 0.17% on the day. Prices shifted in a daily range between $94.17 and $94.55 a barrel. The US benchmark rose by 1.7% on Wednesday, the biggest single-day jump in six weeks, but trimmed its weekly advance to little over 1.5% on Thursday.

Meanwhile on the ICE, Brent futures for settlement in the same month traded at $105.89 at 7:35 GMT, marking a 0.36% daily decline. Prices varied between days high and low of $106.12 and $105.78 a barrel. The European benchmark added 0.6% on Wednesday but extended its weekly decline to over 1.4% following Thursdays drop. Brents premium to its US counterpart continued to narrow as the southern portion of TransCanadas Keystone pipeline is expected to become operational next week, helping ease a supply glut at Cushing, Oklahoma. WTIs discount to its European counterpart narrowed to to $11.92 per barrel on Wednesday, based on closing prices.

The oil market, and mainly US crude, drew solid support yesterday after the Energy Information Administration reported a larger-than-expected decline in US crude inventories in the week ended January 10th. US crude stockpiles fell by 7.66 million barrels to 350.2 million in the seven days through January 10th, the lowest level since March 2012. The drop sharply exceeded the median estimate of 11 analysts surveyed by Bloomberg for a moderate 1.3 million decline. This brought the decrease since November 22 to 41.2 million barrels, the largest seven-week decline on record.

Supplies at Cushing, Oklahoma, the biggest US storage hub and delivery point for NYMEX-traded contracts, rose by 0.2 million barrels to 40.9 million.

Refinery utilization fell to 90.0%, marking a 2.3% retreat from a week earlier. Both gasoline and distillate fuel production decreased last week, averaging 8.3 million and 4.7 million barrels per day.

Motor gasoline inventories rose by 6.18 million barrels to 233.1 million in the seven days to January 10th, exceeding analysts’ projections for a 2.5 million jump, and were in the middle of the average range for this time of the year. Distillate fuel supplies however fell by 1.02 million to 124 million barrels, defying expectations for a 1.25 million increase, and were below the lower limit of the average range.

Michael McCarthy, a chief strategist at CMC Markets in Sydney, said, cited by Bloomberg: “It’s a big surprise on the inventory number. It was a big draw. We have a clear short-term uptrend in place now.”

Domestic crude production rose by 14 000 barrels per day to 8.16 million bpd, the most since 1988. This led to the fall in US crude imports. Inbound shipments slid to 6.9 million bpd last week, 1.1 million bpd, or 13%, less from a week earlier. The four-week average imports stood at 7.4 million barrels per day, 5.3% below the same period a year earlier.

Iran deal

The oil market, and especially the Brent benchmark, continued to be under pressure on prospects of future increases in Iran’s oil exports. An interim deal that was struck in November last year might bring back as much as 1 million bpd of Iranian oil to the global scene as Western nations lift export sanctions in exchange for curbs in the Islamic republic’s nuclear program.

The preliminary agreement between Iran and the five permanent UN Security Council members and Germany goes into force on January 20th, Iran’s Foreign Ministry and the European Union announced on Sunday. Under the accord, the Persian Gulf nations crude exports must hold at 1 million bpd. A diplomatic source said on Monday that the counterparts will start talks on finalizing the settlement in February.

Meanwhile, Iranian crude exports may also rise by as much as 500 000 barrels per day, if an oil-for-goods swap deal between the Islamic republic and Russia goes through, an agreement heavily criticized by Western world powers.

In Libya, operations at the recently reopened Sharara oilfield returned to normal as the government met protesters demands, a spokesman for the group said. The field is currently producing 322 000 bpd and neared its full capacity of 340 000 bpd. Nationwide output surged to 600 000 bpd this week after it was brought back online, up from 210 000 barrels in December.

Fanning some positive sentiment, China’s top oil company CNPC (China National Petroleum Corporation) predicted the Asian nation’s implied oil demand will grow quicker in 2014 as new refineries become operational. Consumption is expected to surge by around 4%, or nearly 440 000 bpd this year, and reach 10.36 million barrels per day.