WTI futures retreat on US weather outlook, demand prospects

West Texas Intermediate crude fell after it gained the most in a week on Wednesday as the winter season in the US drawing closer to an end is expected to reduce heating demand, removing a key support for crude oil. The nations distillate fuel inventories rose for the first week in seven in the seven days through February 21st, data by the Energy Information Administration showed. Losses however remained in check as inventories at Cushing fell for a fourth week, while nationwide stockpiles rose less than expected.

On the New York Mercantile Exchange, WTI crude for settlement in April fell by 0.15% to $102.44 per barrel by 8:26 GMT and shifted in a daily range between $102.19 and $102.59 a barrel. The US benchmark rose by 0.75% on Wednesday, the most in a week, to settle at $102.59. The contract has gained nearly 4% this year.

Meanwhile on the ICE, Brent futures for delivery in the same month lost 0.12% to trade at $109.39 a barrel. Prices varied between days high and low of $109.20 and $109.45 per barrel. The European benchmark was almost unchanged on Wednesday and closed at $109.52, narrowing down its premium to US crude to $6.93 per barrel from $7.68 on Tuesday, based on closing prices.

West Texas Intermediate drew support after the Energy Information Administration reported a fourth consecutive weekly drop in reserves at the biggest US storage hub. Supplies at Cushing, Oklahoma, the delivery point for NYMEX-traded contracts, fell to 34.8 million barrels in the seven days through February 21st from 35.9 million in the previous week. Stockpiles declined by 7 million barrels in the last four weeks to the lowest since mid-October as TransCanada commissioned the southern leg of its KeystoneXL pipeline, which began carrying oil from Cushing to Texas, easing a bottleneck. The line is supposed to reach its full 700 000-bpd capacity throughout the year, its operator said.

The government agency also reported that the nation’s crude oil inventories rose by a mere 68 000 barrels last week, outperforming the median estimate of ten analysts surveyed by Bloomberg for a build of 1.275 million barrels. At 362.4 million barrels, US crude supplies are in the upper half of the average range for this time of year.

Refineries operated at 88% of their operable capacity. Motor gasoline production decreased, while distillate fuel output gained, averaging 8.7 million and 4.6 million barrels per day, respectively.

The EIA also reported that total motor gasoline inventories plunged by 2.8 million barrels last week, exceeding analysts’ projections for a 1-million drop, but remained in the upper half of the average range for this time of the year.

Distillate fuel supplies, which include diesel and heating oil, rose for the first time in seven weeks. Distillate stocks, whose six consecutive weekly declines had lent the crude benchmarks strong support, rose by 0.3 million barrels, defying expectations for a 1.25-million drop, but remained well below the lower limit of the average range.

Chee Tat Tan, an investment analyst at Phillip Futures in Singapore, said, cited by CNBC: “As weather conditions improve going forward, we may see a decline in demand for heating oil and that will put some pressure on oil.”

Demand outlook

The oil complex also drew some support after the Commerce Departments Census Bureau reported yesterday that sales of new single-family homes in the US rose to a 5-1/2 year high of 0.468 million in January, confounding analysts estimates for a drop to 0.400 million. Decembers reading was revised up to 0.427 million from initially estimated at 0.414 million. However, a broader weakness in the US housing market curbed the positive sentiment.

US home prices rose slower in December from a year earlier, with the S&P/Case-Shiller Composite-20 Home Price Index posting at 13.4%, down the preceding month’s 13.7% reading.

Meanwhile, declining consumer sentiment in the US also fanned some negative sentiment. The Conference Board reported on Tuesday that its consumer confidence index slid to 78.1 in February, confounding analysts’ expectations for a jump to 80.0. Moreover, January’s reading received a downward revision to 79.4 from initially estimated at 80.7.

Allegedly downbeat numbers from China on Saturday are also expected to push prices down. Government data may show that Chinas official manufacturing Purchasing Managers Index fell to 50.1 in February, down from 50.5 in January, just an inch above the expansion-contraction threshold at 50.0.

A private survey showed last week that manufacturing activity in the worlds second biggest economy and oil consumer fell to a seven-month low, marking a second month of contraction. The HSBC Flash China Manufacturing PMI slid to 48.3 in February, down from January’s final reading of 49.5, underperforming expectations for a minor-to-no change from the previous month. The Flash China Manufacturing Output Index registered at 49.2, compared to 50.8 in January, also a seven-month low.

A stronger dollar also pressed on dollar-denominated commodities, including crude prices. The US dollar index, which measures the greenbacks performance against a basket of six major trading peers, traded at 80.535 at 8:20 GMT, up 0.09% on the day. The March contract surged to a two-week high of 80.57 earlier in the session and is up 0.3% on weekly basis. Strengthening of the greenback makes raw materials priced in it costlier for foreign currency holders and limits their appeal as an alternative investment.

Market players also eyed the persisting civil tension in Libya, which has cut the African countrys nationwide output to little over 200 000 bpd, as well as the unfolding crisis in Ukraine where a possible Russian military intervention would be a crucial mistake, the United States warned.