WTI futures drop ahead of US supplies data, PMI data drag

West Texas Intermediate crude fell for the first time in three days on Tuesday ahead of US supply data that may show a tenth consecutive weekly build in US crude oil inventories. Worse-than-expected manufacturing PMI data from both the US and China on Monday fueled concerns over demand prospects in the worlds two biggest consumers, but a further drop in Libyan output and a reduced refining capacity from the second-largest US refinery kept losses checked.

On the New York Mercantile Exchange, WTI crude for delivery in May fell by 0.15% to $99.45 per barrel by 8:02 GMT. Prices shifted in a daily range between $99.26 and $99.61 per barrel. The US benchmark added 0.15% on Monday, a second daily gain, and settled at $99.60 a barrel.

Meanwhile on the ICE, Brent futures for settlement in the same month fell by 0.15% to $106.65 a barrel, having varied in a range between days high and low of $106.44 and $106.82 per barrel. The European crude benchmark lost 0.1% on Monday and closed the session at $106.81 a barrel. Brent traded at a premium of $7.20 to its US counterpart after it closed at $7.21 on Monday, down from Friday’s settlement at $7.46.

WTI crude fell on Tuesday ahead of a private and a government supply reports which may show a tenth consecutive weekly build up in US crude inventories. According to a Bloomberg survey of nine analysts before the release of EIAs statistics tomorrow, US crude supplies probably rose by 2.5 million barrels in the seven days through March 21st. Motor gasoline stockpiles are expected to have fallen by 1.7 million barrels, while distillate fuel inventories, which include diesel and heating oil, have likely declined by 1.1 million barrels.

The American Petroleum Institute will release its separate report later today. However, the trade-associations data is deemed less popular than EIAs figures 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 EIA.

Last week the EIA reported that US crude stocks rose for a ninth consecutive week to 375.9 million barrels. US crude production jumped by 33 000 barrels per day to hit 8.22 million bpd, the highest since 1988, while refinery utilization rates fell to 85.6%, the lowest since April.

Manufacturing data

The oil market remained under pressure after weaker-than-expected manufacturing data from both China and the US spurred concerns over demand prospects in the worlds top oil consumers.

A preliminary gauge of manufacturing activity in China showed a third straight monthly contraction in the sector. The HSBC Flash China Manufacturing PMI, prepared by HSBC and Markit Economics, fell to an eight-month low of 48.1 in March from February’s final reading of 48.5. The figure also fell short of analysts’ expectations for a jump to 48.7.

Meanwhile, China’s Flash China Manufacturing Output Index slid to 47.3 this month from 48.8 in February, an eighteen-month low. The negative readings, coupled with previous weak data points released earlier in the month, spurred fears the world’s second-biggest economy and oil consumer may not be able to meet Premier Li Keqiang’s 7.5% annual growth rate target.

In the US, manufacturing activity retreated from a 45-month high in February, according to a gauge prepared by Markit Economics. The US manufacturing PMI registered at 55.5, underperforming expectations for a drop to 56.5 from Februarys 57.1.

Tan Chee Tat, investment analyst at Singapores Phillip Futures, said for CNBC: “The PMI flash figure is more significant. The lower-than-forecast PMI figure resulted in a swing in market sentiment to bearishness which weighed on oil prices.”

Nevertheless, Marchs reading was still the second highest since January 2013 and signaled robust growth with output and new orders rising sharply, while employment jumped for a ninth month.

Support

The oil market however drew support as output in Libya, holder of Africas biggest crude reserves, will be reduced on Tuesday by a further 80 000 barrels per day to around 150 000 bpd, the state-run National Oil Corporation said. The outage was due to the closure of the El Feel oilfield as the pipeline to the Mellitah port was shut. The African country produced a total of 1.4 million barrels of oil per day last summer, before rebel groups and protesters cut most of the countrys capacity.

Meanwhile in the US, authorities expected a partial reopening of the Houston Ship Channel, which was closed after an oil barge spill shut the waterway for a third day. The channel is closed from north of Texas City down to its entrance at Bolivar, curbing production at the countrys second-largest refinery. There are 140 vessels waiting to pass through it, but authorities gave no timeline on Monday on when it will be reopened.

Market players are continuing to keep a close watch on diplomatic developments between Russia and the West, as well as upcoming housing data and consumer confidence out of the US later today.