Oil weekly recap, January 13 – January 17

West Texas Intermediate crude rose on Friday and settled the week higher as upbeat economic data from the US boosted demand prospects in the worlds top consumer. Brent crude also advanced, but closed the week lower amid fears of rising Iranian oil exports and as output in Libya, holder of Africas biggest crude reserves, remained near three times higher compared to December. A stronger dollar weighed on the oil complex.

On the New York Mercantile Exchange, WTI crude for settlement in March rose by 0.52% to $94.59 per barrel on Friday after swinging between a two-week high of $95.07 and $94.06. The contract lost 0.3% on Thursday but settled the week 1.6% higher, snapping two weeks of losses when the US benchmark shed nearly 7.4%.

Meanwhile on the ICE, Brent crude for delivery in the same month gained 0.7% on Friday to settle at $106.48 per barrel. Prices shifted in a daily range between days high of $106.95 and a two-month low of $105.44 a barrel. The European benchmark lost 0.5% on Thursday but trimmed its weekly decline on Friday, settling 1.2% lower. Brents premium to its US counterpart widened to $11.89 per barrel, up from $11.41 in the previous session, based on closing prices.

US crude drew support on Friday after another batch of overall upbeat data provided signs that growth in the US is accelerating, and the economic recovery seemed sustainable. US home construction slowed less than analysts had projected, while industrial output expanded for a fifth consecutive month. A decline in consumer sentiment however caught the markets off-guard and limited gains.

A report by the US Census Bureau revealed that the number of building permits issued in December retreated to 0.986 million, exceeding analysts expectations for a minor drop to 1.015 million from Novembers 1.017 million. Decembers reading however remained not far off Septembers 5-year high of 1.034 million.

Meanwhile, the government agency also reported that housing starts fell to a 0.999 million annualized rate last month, retreating from Novembers upward revised 1.107 million which was the strongest reading since November 2007. Last months decline however was less than analysts expectations for a drop to 0.990 million.

Also fanning positive sentiment for the state of the US economy, data by the Federal Reserve showed that industrial production in the worlds largest economy advanced for a fifth consecutive month in December. Output at factories, mines and utilities matched economists forecasts and advanced by 0.3%. Novembers reading received a downward revision to 1.0% from initially estimated at 1.1%.

A worse-than-expected consumer sentiment in January however pressured the market, forcing it to retreat from session highs. Januarys preliminary reading of the Thomson Reuters/University of Michigan consumer sentiment index registered at 80.4, defying analysts projections for an advance to 83.5 from Decembers final reading of 82.5.

Phil Flynn, senior market analyst at the Price Futures Group in Chicago, commented on the report, cited by Bloomberg: “The consumer confidence numbers were a real downer. Today’s data followed a lot of positive signals, so it came as a surprise.”

Inventories levels

The market remained well supported throughout the week after the Energy Information Administration reported on Wednesday 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.

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.

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.

Opec output

The Organization of the Petroleum Exporting Countries, which accounts for 40% of global crude output, has reduced its production further and is currently pumping less than this year’s estimated demand for OPEC crude. The group’s output fell by 20 000 barrels per day to 29.44 million in December amid losses from Libya, Iraq and Saudi Arabia. That is less than the average of 29.6 million OPEC had estimated will be required in 2014 and below its production target of 30 million bpd.

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 nation’s 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.

In Libya. nationwide output was at 570 000 barrels per day on January 15th, data by the state-run National Oil Corp. showed. Output almost tripled since December after the government managed to negotiate the reopening of the western Sharara field on January 4th.

Mustafa Lamin, a spokesman for the protesters, said that the demonstrators that had previously closed the field will extend the deadline for the government to meet their demands by a week before resuming the shutdown. Crude prices are expected to remain supported for some time with the countrys eastern export terminals remaining closed and under the control of rebel groups demanding a share of the countrys oil revenues.