Crude oil futures weekly recap, September 8 – September 12

WTI futures closed little changed from last week on Friday, while Brent stood near a 26-month low after slumping on reduced global demand growth outlooks and ample supplies. Meanwhile, tensions over Ukraine and the fight against Islamic State failed to offer much upside, as traders kept away from any risk premium.

WTI crude for delivery in October on the New York Mercantile Exchange fell by 0.60% on Friday to settle the week 1.1% lower at $92.27 a barrel, with prices reaching a 16-month low of $90.43. The contract lost 2.7% last week.

Meanwhile on the ICE, Brent October futures lost 0.99% on Friday to close at $97.11 a barrel, registering a 3.7% weekly loss, as prices reached a 26-month low of $96.72. Brent’s premium to its US counterpart narrowed to $4.84 from Thursday’s settlement at $7.38. The European contract lost 2.3% last week.

Prices have been grinding lower this week, as bearish outlooks on global demand spread ahead of the International Energy Agency’s monthly report. The agency, which consults developed nations on oil matters, cuts its forecasts for oil demand growth for this year and 2015 by 150 000 and 100 000, respectively, to 900 000 in 2014 and 1.2m next year.

Meanwhile, Saudi Arabia said it is not planning a cut in output to accommodate a higher global price for crude, dispelling speculation that such a move will come to support prices soon. The country did, however, report a slowdown in production for August, though growing exports from Iraq and Libya more than accounted for it.

OPEC also lowered the projected volume of crude it would market next year, as global demand was seen slowing, supporting IEA’s outlook.

“The recent slowdown in demand growth is nothing short of remarkable,” the agency said.

IEA’s forecast cut comes as a separate US outlook proposed growing supplies, further pressuring crude. The Energy Department’s statistics arm, the Energy Information Administration, said oil prices next year will be lower as US crude output reaches a 45-year peak. Meanwhile, the US weekly oil inventory build painted an even gloomier picture, pressuring crude deeper into bear territory.

US inventories

The EIA report, which covers the week through September 5, revealed crude inventories dropped 1 million barrels, largely meeting expectations of 1.1m-1.5m draw. The decrease extends the series of declining US stocks to an 11th out of 12 weeks.

Production of crude logged a minor drop to 8.6 million barrels per day, up 11% on an annual basis. Net imports last week were 7.2m, down 9% on an annual basis, outlining the shift towards domestic production, in light of booming shale production in the US.

“There’s a supply issue, particularly in the US,” Michael McCarthy, a chief strategist at CMC Markets in Sydney, said for Bloomberg. “There are clear questions around demand growth for oil over the next one to two years.”

Gasoline stocks surprisingly added 2.4m barrels, compared with expectations of no change or slight decrease, signaling the US is oversupplied with the fuel, pressuring crude lower. Meanwhile, distillates, a category which includes diesel and heating fuel, were up almost 4.1m barrels, compared with forecasts of a 0.6m-1m gain.

Refineries bumped up production, EIA logging a weekly refinery utilization rate of 93.9%, 1.5% up on annual basis and almost 10% more than two years ago. Gasoline production, however, was actually some 5% lower than a week ago at ~9m barrels daily, while distillates output averaged 5.1m, little changed from a week ago.

Geopolitics

On the geopolitical scene, Ukraine was still kept on radar, as the EU introduced fresh sanctions, directly targeting Russian state-controlled oil companies. Moscow denounced the move and said it was ready to implement its own fresh counter-sanctions.

The market shrugged off the possibility of near-term negative global implications for crude supply, holding back the risk premium.

Meanwhile, the truce between Kiev and pro-Russian rebels was largely holding, though both sides seemed as distant from a peaceful resolution, with separatists calling for complete independence and Kiev even vowing to bring Crimea, the Black Sea peninsula annexed by Russia in March, back to Ukraine.

In the Middle East, the US had begun preparations for an international coalition against the Islamic State, after President Barack Obama had authorized air strikes on IS targets in Syria, signaling the US determination to “defeat” IS.

Next week

Next week has a lot in store in terms of economic data. On one side of the Atlantic, the Eurozone will post crucial CPI readings, as investors begin to gauge the effects of ECBs fresh dovish stance. Meanwhile, the US will report key PPI and CPI readings, in addition to housing data, industrial production and manufacturing gauges on New York and Philadelphia.