WTI futures hold near three-week high on Cushing inventories, supply concerns

West Texas Intermediate crude traded near the highest level in three weeks and is set for a second weekly gain as supplies at the biggest US storage hub fell to a two-year low and a possible escalation in tension surrounding Ukraine threatened to curb energy exports from Russia. A brighter economic outlook in the US and a further reduction in Libyan crude output also supported the oil market.

On the New York Mercantile Exchange, WTI crude for delivery in May traded at $101.56 per barrel at 7:51 GMT, up 0.28% on the day. Prices shifted in a daily range between $101.64, near Thursdays 2-1/2-week high of $101.70, and days low at $101.18 per barrel. The contract rose by 1% yesterday to settle at $101.28 a barrel, the highest close since March 7th.

Meanwhile on the ICE, Brent futures for settlement in the same month stood at $107.81 a barrel, down 0.02% on the day. Prices held in a daily range between $107.62 and $107.97 per barrel. The European crude benchmark rose by 0.75% on Thursday to $107.83 a barrel, set for its first weekly advance in five, up 0.8% on the week so far. Brents premium to its US counterpart narrowed to $6.25 from Thursdays close at $6.55.

The oil market continued to draw support by a brighter US economic outlook and as supplies at Cushing, Oklahoma, the biggest US storage hub and delivery point for NYMEX-traded contracts, extended their drop to a new two-year low.

The US economy expanded at a 2.6% annualized rate in the final three months of 2013, slightly below analysts’ expectations of a 2.7% gain, but up from a preliminary estimate of 2.4%, a report by the the Bureau of Economic Analysis showed. The US gross domestic product grew by 4.1% in the third quarter.

Data also showed that personal consumption expenditures rose 3.3% in the fourth quarter, the most since the final three months of 2010, exceeding analysts’ projections of a 2.8% increase and up from an initial estimate of 2.6%. Consumer spending is regarded a key economic indicator as it typically accounts for almost 70% of the US economic growth.

Strong consumer spending on services, especially in the health care sector, helped boost the expansion, a sign this year’s slowdown can be partly attributed to the inclement weather.

Earlier in the week, the Commerce Department reported a surprisingly large jump in orders for durable goods in the US. Bookings for items meant to last more than three years rose by 2.2% in February, reflecting solid growth in demand for autos. Analysts had expected a moderate rebound to 1% growth from the preceding period’s downward revised 1.3% contraction. This comes after data by the Conference Board showed on Tuesday that US consumer confidence jumped to a six-year high in March.

US crude inventories

US crude drew heavy support and narrowed its discount to Brent after the Energy Information Administration reported on Wednesday that supplies at Cushing, Oklahoma, the biggest US storage hub and delivery point for NYMEX-traded contracts, fell for an eight consecutive week in the seven days through March 21st. Supplies at the hub slid 1.33 million barrels to a two-year low of 28.5 million.

Nationwide inventories jumped for a tenth week, limiting price gains. Stockpiles grew by by 6.6 million barrels last week to 382.5 million barrels, the highest since November. Analysts had expected a 2.5-million jump.

Total motor gasoline inventories fell by 5.1 million barrels to 217.2 million, outstripping expectations for a decline of 1.7 million barrels, as gasoline demand jumped by 5.8% to a three-month high of 9.002 million bpd. Distillate fuel inventories, which include diesel and heating oil, rose by 1.56 million barrels to 112.4 million, defying analysts’ projections for a 1.1-million-barrel drop.

Supply fears

Also aiding oil prices, the recently receded fears of an escalation in tension between Russia, the worlds biggest oil producer, and the West were renewed after the US and the EU agreed on Wednesday to work on preparing possible tougher economic sanctions against Russia, including its energy sector, and also reduce Europe’s dependence on Russian energy exports.

President Obama warned on Wednesday after a meeting with European leaders that Moscow’s isolation will deepen, if it continues its current course. Obama said on Thursday in Rome that the US and its allies are closely studying Russias military, energy and finance sectors to determine which sanctions could have the most powerful impact, if a new round of penalties should be imposed. The US Senate and House of Representatives passed bills imposing additional sanctions on Russian officials with allegedly close ties to President Vladimir Putin.

Also spurring supply concerns, output in Libya, holder of Africas biggest crude reserves, fell further after protesters blocked a 30 000-bpd pipeline from the southwestern al-Wafa oilfield to the Mellitah export terminal.

The state-run National Oil Corporation also said earlier in the week that nationwide crude output in Libya has fallen to around 170 000 barrels per day as export terminals and oilfields remain blocked amid political turmoil. The 340 000-bpd El Sharara oilfield, Libyas second-largest, remained closed for another week, while the 130 000-bpd El Feel field was also shut.