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WTI futures rise on US optimism, weak dollar

West Texas Intermediate crude rose for the first time in three sessions as rising optimism for the US economic recovery bolstered demand outlook, offsetting an unexpected contraction in the countrys manufacturing sector. A weaker dollar, shrinking Libyan output and further signs of stabilizing economic activity in China also supported the oil complex.

On the New York Mercantile Exchange, WTI crude for settlement in March traded at $100.82 per barrel at 7:50 GMT, up 0.52% on the day. Prices held in a daily range between $101.04 and $100.23 per barrel. The US benchmark fell by less than 0.1% the last couple of sessions but settled the week 0.4% higher, marking a fifth consecutive weekly advance, the longest rally in a year.

Meanwhile on the ICE, Brent futures for delivery in April fell by 0.05% to trade at $109.03 a barrel and shifted in a daily range between $108.93 and $109.40 per barrel. The European benchmark lost 0.5% last week but widened its premium to its US counterpart to $8.95 per barrel, based on closing prices.

The oil market was pressured on Friday after the Federal Reserve reported that industrial production in the US contracted by 0.3% in January, confounding analysts’ expectations for a 0.3% growth, which would have matched December’s expansion rate.

Manufacturing output slid by 0.8%, the biggest drop in 4-1/2 years, missing analysts’ projections for a minor 0.1% advance. The data exacerbated previous weak economic readings from the US and was attributed to the cold weather last month which impaired production at assembly lines.

The Commerce Department’s Census Bureau reported earlier in the week that retail sales in the United States surprisingly contracted by 0.4% in January, confounding economists’ forecasts for a 0.3% increase. December’s reading received and upward revision to show a 0.2% growth, up from initially estimated at -0.1%.

A separate report by the Labor Department showed that the number of people who filed for initial unemployment benefits in the week ended February 8th rose to 339 000, defying analysts’ projections for a drop by 1 000 to 330 000 from the previous period.

The dollar fell to the lowest in two months against a basket of major currencies, supporting raw materials priced in it. The US dollar index for settlement in March traded at 80.115 at 7:24 GMT, down 0.08% on the day, having fallen to a session low of 79.990, the weakest level since mid-December. The US currency gauge slid by 0.7% last week, which followed a 0.8% decline in the preceding five-day period.

However, better-than-expected consumer confidence in the US spurred bullish sentiment and helped offset losses. The Thomson Reuters/University of Michigan preliminary consumer sentiment index rose to 81.2 in February, defying analysts’ forecasts for a drop to 81.5 from January’s final reading of 81.2. The survey’s six-month expectations index jumped to 73 from 71.2 last month.

Jonathan Barratt, the chief executive officer of Barratt’s Bulletin in Sydney, said, cited by Bloomberg: “There’s generally a good feel about the economy. Oil has held onto $100, and if prices stay above here, then it should move higher.”

According to data by the US Commodity Futures Trading Commission, money managers raised their net-long positions on WTI by 11% in the week ended February 11th. Wagers that prices will decline fell by the most in almost three years on optimism the commissioning of the Keystone XL pipelines southern portion will ease a bottleneck at Cushing, Oklahoma. Stockpiles at the hub fell for a second week in the seven days to February 7th, hitting the lowest level since November, 37.6 million barrels.

Crude prices are expected to remain supported in the short-term after cold weather across the eastern US pushed up demand for heating oil. According to the Energy Information Administration, 25% of households in the Northeast use heating oil to warm their homes.

China outlook

Another sign of stabilizing economic activity in China also offered the oil market some support with data over the weekend showing that banks loaned out the biggest amount of money in four years in January, suggesting the Asian economy is not slowing down as much as some economists feared.

This comes after surprisingly upbeat China trade data also fanned positive sentiment as the country’s exports and imports exceeded projections, while crude imports rose to a record 6.63 million barrels per day, up 11.9% from a year earlier, amid the opening of two refineries and a petroleum reserve cite. Benign inflation numbers were also supportive.

Market players are now awaiting HSBCs preliminary manufacturing PMI reading, due on Thursday, which is expected to show a slight improvement but will likely remain in the contraction zone.

Prices also received a lift after Libyas crude output slid to 390 000 barrels per day after protesters partially cut flows from the western El Sharara oilfield, the state-run National Oil Corporation said. Meanwhile, three of the nations eastern export terminals remain shut after rebels seized control over them in the summer.

Market players also eyed the developments in talks between the West and Syria after the latest peace talks ended without progress last week.

U.S. Secretary of State John Kerry, said in a statement: “None of us are surprised that the talks have been hard and that we are at a difficult moment, but we should all agree that the Assad regime’s obstruction has made progress even tougher.”

Although Syria is not a major oil producer, the yet continuing inability of both sides to reach a diplomatic accord spurs fears among investors that a possible US military intervention against the Assad-regime might spill the conflict into neighboring major oil producers.

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