WTI futures set for biggest weekly decline this year on US supplies, domestic output

West Texas Intermediate crude fell for a fourth day in five on Friday and is headed to its poorest weekly performance since January after an eight consecutive jump in US crude inventories, while domestic output surged to the highest in more than 25 years and the Energy Department announced a Strategic Petroleum Reserve release. Upbeat data from the US boosted its economy outlook, but downbeat numbers from China dimmed global demand prospects. The unfolding crisis in Ukraine limited movement to the downside.

On the New York Mercantile Exchange, WTI crude for delivery in April was mostly unchanged at $98.16 per barrel at 7:46 GMT, down 0.04% on the day. Prices shifted in a narrow daily range between $98.06 and $98.30 a barrel. The US benchmark added 0.2% on Thursday, snapping three days of declines, but is headed toward its biggest weekly decline in more than two months, down nearly 4.4% so far.

Meanwhile on the ICE, Brent futures for settlement in May traded at $106.95 a barrel, up 0.03% on the day, and varied in a daily range between $106.75 and $107.16 a barrel. The European benchmark lost 0.4% on Thursday and ended the session at a premium to its US counterpart of $9.19, down from $10.03 on Wednesday. The contract is set for its third straight weekly decline.

WTI is set to mark its worst weekly performance this year as rising US inventories and record-high domestic output offset upbeat economic readings, which bolstered the US economys recovery outlook.

The Energy Information Administration reported on Wednesday an eight consecutive weekly build in US crude oil inventories. Supplies rose by 6.18 million barrels in the seven days through March 7th, sharply exceeding a projected 2-million increase, and reached 370.0 million barrels, the highest since December 13th.

The build was partially attributed to a drop in refinery utilization rate as units were shut for spring maintenance. Refineries operated at a four-month low of 86.0% of their operable capacity, down 1.4% from a week earlier.

At the same time, domestic crude production jumped by 1.3% to 8.18 million barrels per day last week, the EIA said, the highest since July 1988.

Prices drew some support as inventories at Cushing, Oklahoma, the biggest US storage hub and delivery point for NYMEX-traded contracts, fell by 1.3 million barrels to a two-year low of 30.8 million, marking a sixth straight weekly drop. Analysts however feared that the southern leg of TransCanada’s KeystoneXL pipeline, which began delivering crude from Cushing to the Gulf Coast in January, merely carried the bottleneck to Texas, having shown no effect on nationwide stockpiles levels so far.

Also weighing on the market, the US Energy Department announced a surprise plan to sell 5 million barrels of oil from its emergency stockpiles in order to test the nation’s distribution system. This would amount to less than 1% of the country’s reserves, the first release since August 1990, and was seen as a message toward Russia and its intentions of annexing Crimea.

US, China data

However, another set of positive economic readings from the US kept the American benchmark from scoring new monthly lows. The Labor Department reported on Thursday that the number of people who filed for initial unemployment benefits in the US during the week ended March 8th fell to 315 000, defying analysts projections. Economists had expected a jump to 330 000, while the preceding periods reading was revised up by 1 000 to show 324 000.

A separate report by the Commerce Department showed that retail sales jumped by 0.3% in February, beating analysts forecasts for a 0.2% growth after Januarys downward-revised 0.6% contraction. Nine out of thirteen major categories marked gains.

However, worse-than-expected readings from second-biggest oil consumer China continued to raise concerns over global demand prospects, pressuring down the markets. The National Bureau of Statistics reported that the Asian nation’s industrial production expanded by 8.6% in the January-February period, compared to a 9.7% growth during the same months a year earlier. Analysts had expected a minor slowdown to a 9.5%-expansion.

At the same time, retail sales rose by 11.8% year-on-year, also trailing expectations for a minor retreat to an expansion of 13.5%, compared to last year’s 13.6% growth.

This comes after China’s statistics agency reported on Saturday that the Asian nation’s exports surprisingly contracted by 18.1% in February on an annual basis, confounding analysts’ expectations for a 6.8% expansion following January’s 10.6% growth.

Support

Oil prices, particularly the Brent crude benchmark, continued to draw support by the unfolding crisis in Ukraine. Russian troops began new military drills near its Ukrainian border on Thursday, cementing its position on annexing Crimea after Sundays referendum, which supposedly should result in a vote for the peninsula to separate itself from Ukraine.

Meanwhile, the European Union stiffened its tone with German Chancellor Angela Merkel warning of a political and economical “catastrophe”, if Russia keeps its current geopolitical course.

Michael McCarthy, chief strategist at CMC Markets in Sydney, said for CNBC: “I see this as a binary risk, meaning it ends either all good or all bad. A peaceful resolution would remove some of the premium that Brent has over West Texas Intermediate. But the short term direction is very hard to pick.”