Oil weekly recap, January 20 – January 24

West Texas Intermediate crude snapped four straight days of gains on Friday following a slide in equities on concern that growth in emerging economies will slow, reducing demand for petroleum products. The US benchmark nevertheless settled the week higher, supported by a bullish EIA inventories report and as a new pipeline, supposed to ease a bottleneck at Cushing, Oklahoma, became operational. Brent also marked a weekly advance.

On the New York Mercantile Exchange, WTI crude for delivery in March fell by 0.70% to $96.64 per barrel on Friday after closing at $97.32 the previous day, the highest settlement this year. Prices held in a daily range between $97.80 and $96.25 and were up 2.7% this week following a 1.6% gain during the preceding one.

Meanwhile on the ICE, Brent futures for settlement in the same month jumped by 0.28% to $107.88 a barrel on Friday after shifting in a daily range between $108.03 and $107.88. The European benchmark fell by 0.6% on Thursday, dragged by demand concerns in China, but settled the week 1.4% higher. Brents premium to its US counterpart widened to $11.24 based on closing prices, up from $10.26 on Thursday.

US crude retreated on Friday as previous reports indicating economic slowdown in China continued to weigh on the market, and US equities retreated on concerns that growth in emerging economies will slow. A preliminary private report showed on Thursday that declining new orders led to the first contraction in China’s manufacturing activity in six months, confirming that a mild slowdown late last year has extended into 2014. The HSBC Flash China Manufacturing PMI plunged to 49.6, defying analysts’ projections for a minor increase to 50.6 from December’s final reading of 50.5. Meanwhile, the Flash China Manufacturing Output Index registered at 51.3 in January, down from 51.4 in December, hitting a three-month low.

Earlier in the week, China’s National Bureau of Statistics reported that output in factories, mines and utilities grew at a slower pace in December, fueling concerns over economic slowdown and demand for riskier assets. China’s industrial production grew by 9.7% on an annual basis last month, the slowest since July, trailing analysts’ expectations for a drop to 9.8% from November’s 10% advance.

Meanwhile, China’s economy grew by 1.8% in the fourth quarter, the government agency reported, underperforming projections that expansion would ease to 2.0% after posting at 2.2% in the three months through September.

China’s GDP expanded by 7.7% in 2013, matching the median estimate of analysts surveyed by Bloomberg. This was also the same expansion rate as in 2012, which however was the slowest since 1999.

Political turmoil in Turkey, Argentina and Ukraine further weighed on the stock market.

US inventories

Oil prices however drew support after the Energy Information Administration reported a much-larger-than-expected decline in US distillate stockpiles last week. Inventories fell by 3.21 million barrels in the seven days through January 17th as bitter cold weather in the US stoked demand for heating oil, sharply exceeding the median estimate of ten analysts surveyed by Bloomberg for a drop of 500 000 barrels.

Refineries operated at 86.5% of their operable capacity, the EIA also said, down from 90.0% in the previous period, suggesting the severe weather had an impact on refiner runs. Gasoline production increased last week, while distillate fuel output decreased, averaging 8.5 million and 4.5 million barrels per day.

Motor gasoline stockpiles jumped by 2.12 million barrels last week to 235.3 million, underperfoming analysts’ expectations for a 1.75-million drop.

US crude inventories rose by 990 000 barrels to 351.2 million, snapping seven straight days of gains. Analysts expected a 1.15-million increase. Supplies at Cushing, Oklahoma, the biggest US storage hub and delivery point for NYMEX-traded contracts, increased to 41.6 million barrels, up from 40.9 million in the previous week.

Also fanning positive sentiment, a separate report by the industry-funded American Petroleum Institute showed that demand for petroleum products in the US jumped in December, reflecting accelerating economic growth. Year-on-year, consumption surged by 5.8% in December to 19.2 million barrels per day. Gasoline demand gained 4.5% to 8.8 million barrels, the API said, while output jumped to a record for the month at 9.4 million bpd. This was also 66 000 bpd below the all-time record.

Global outlook

This comes after the International Energy Agency reported on Tuesday that accelerating global economic growth will absorb additional crude supply, even as the US shale oil boom drives domestic output to record high levels and US imports decline. Global consumption will rise by 1.3 million barrels, or 1.4%, to a record 92.5 million in 2014, the Paris-based agency predicted. This was a 90 000-bpd upward revision from December’s forecast, following the first annual demand expansion in developed nations since 2010, with the US being the largest driver of growth.

Also on Tuesday, the International Monetary Fund raised its global economic expansion forecast for the first time in almost two years as growth in developed countries, such as the US and UK, accelerates. The IMF urged advanced economies to extend their accommodative policies in order to sustain economic recovery so that they could pick up the mantle of growth from emerging markets.

Keystone XL

The oil market also gained support and jumped to the highest in three weeks on Wednesday after TransCanada Corp. began moving crude oil through its new pipeline from Cushing, Oklahoma to the Gulf Coast. The Gulf Coast line, also known as the southern portion of the Keystone XL pipeline, was initially transferring 288 000 barrels per day of US light, sweet oil from Cushing, Oklahoma to Nederland, Texas. It is expected to reach its 700 000-bpd capacity throughout the year, easing a bottleneck at Cushing, the biggest US storage hub and delivery point for NYMEX-traded contracts.

Amrita Sen, chief oil market strategist at Energy Aspects Ltd, said, cited by Bloomberg: “You needed Keystone XL south to have started for investors to go long WTI with confidence. The logic for Cushing emptying is that outgoing capacity is to be more than incoming capacity and with the starting of Keystone XL south that capacity increase should finally materialize.”