WTI futures hold near 1-week low on slow US manufacturing growth, inventories data in focus

West Texas Intermediate crude was little changed and held near Mondays one-week low in early European trading on Tuesday after a report showed the US manufacturing sector expanded at the slowest pace in eight months in January, spurring fears of softening oil demand. Expectations that a government report due on Wednesday will show US crude inventories rose in the week ended January 31st also weighed on the market.

On the New York Mercantile Exchange, WTI crude for delivery in March rose by 0.23% to $96.65 per barrel by 8:02 GMT. Prices shifted in a narrow daily range between $96.73 and $96.43 a barrel. The US benchmark fell to a one-week low of $96.26 on Monday and settled the day 1.1% lower at $96.43, the lowest close since January 27th.

Meanwhile on the ICE, Brent futures for settlement in the same month were unchanged at $106.04 per barrel and held in a daily range between $105.78 and $106.18. The European benchmark slid 0.34% yesterday to $106.04 and widened its premium to its US counterpart to $9.61, up from $8.91 on Friday, which was the narrowest since mid-October.

US crude plunged on Monday after a report showed manufacturing growth in the US eased in January, which coupled with a recently released downbeat manufacturing data from China further pressured global demand prospects.

The Institute for Supply Management reported yesterday that its factory index unexpectedly fell to 51.3 in January following the biggest drop in new orders in 33 years. This was the slowest expansion level in eight months, marking a steep plunge from Decembers 57.0. Januarys reading trailed analysts expectations for a minor growth slowdown to 56.4 and also missed the most pessimistic forecast in a Bloomberg survey of economists.

A report by Chinas National Bureau of Statistics showed on Saturday that the nation’s manufacturing Purchasing Managers’ Index slid to 50.5 in January, matching a projected decline and trailing December’s reading of 51.0. The level of 50 represents a threshold separating expansion and contraction in the respective sector.

Crude inventories

The oil market was further pressured amid expectations for a further build up in US crude inventories last week. According to a weekly Bloomberg survey of ten analysts before the release of a government report tomorrow, crude supplies are projected to have increased by 2.25 million barrels in the seven days through January 31st. Gasoline inventories are projected to have risen by 1.35 million barrels, while distillate fuel stockpiles, a closely watched category during the winter, likely fell by 2.5 million barrels.

The industry-funded American Petroleum Institute will release its separate private report later today. APIs statistics however are deemed less popular than EIAs data as they are based on voluntary information provided by operators of pipelines, refineries and bulk terminals, while the government requires reports to be filed with the Energy Information Administration.

Middle East, North Africa

The oil marker, and mostly the Brent benchmark, continued to draw support by ongoing turmoil in the Middle East and North Africa. Libyas Prime Minister Ali Zeidan raised pressure on rebel groups who have been blocking the countrys eastern ports since the summer, threatening them he had ordered the army weeks ago to prepare to put an end to their blockade.

Investors were also keeping a close watch on the unwinding turmoil in Iraq. After Sunni Muslim anti-government fighters, including al Qaeda-linked rebels, overran the city of Fallujah on January 1st, the Iraqi army prepared for a ground assault to retake the city after intensifying its bombing on Sunday.

Nationwide output fell to 2.23 million barrels per day in January from 2.34 million in December due to attacks on a pipeline transporting crude from the northern Kirkuk oilfields to Turkey, Oil Minister Abdul Kareem Luaibi said last week. Bad weather conditions disrupting shipping from the country’s southern export terminals also contributed to the slowdown, Luaibi said.

Meanwhile in Syria, at least 83 people were killed after military helicopters bombarded the northern city of Aleppo. The ongoing Syrian civil war and the until recently highly-probable US military intervention have supported oil prices amid fears that the conflict might spread over to neighboring major oil producers, if it were to became a multi-national war scene.

A newly reported glitch at North Seas Buzzard oilfield also contributed to supply worries, supporting the European benchmark.