Crude futures rose modestly Friday after strong US economic data helped offset ongoing concerns over anemic demand and plentiful supplies.
Front-month NYMEX crude closed 5 cents higher at $82.75/b, while ICE December Brent settled up 34 cents at $86.16/b.
In refined products, NYMEX November ULSD settled up 2.73 cents higher to $2.4976/gal. NYMEX November RBOB closed 2.18 cents higher at $2.2327/gal.
Housing starts grew in September, the Commerce Department said. Another report showed the Thomson Reuters/University of Michigan preliminary consumer sentiment in October at its highest level since July 2007.
While Friday's economic news helped lift oil prices, other bearish factors continue to weigh on the market, Tradition Energy analyst Gene McGillian said.
"Selling pressure eased, but fears of slowing economic conditions in Europe and supplies sloshing around continue to be the driving features," he said. "Next week, the market could search for a new bottom."
Crude futures had plunged to multi-year lows this week before recovering after the US Energy Information Administration reported a larger-than-expected US gasoline draw last week.
EIA also said the amount of crude processed last week by US refineries rose to more than 15 million b/d, a level not seen for the same reporting week since 2007.
Some analysts see the crude run rate as evidence of still-robust demand, while others believe refineries will end up flooding the market and depressing product prices.
The broader debate involves whether oil prices have fallen enough to stimulate demand and whether supply will start to decline because OPEC members cut output or some production become uneconomic.
In a research note Friday, Goldman Sachs called the price drop "too much too soon."
The selloff was driven by expectations of a "supply glut," but oil prices are based on current conditions and the physical market does not now show such an overhang, the bank analysts said.
"OECD inventories remain below the five-year average, the recovery in Libyan output has yet to materially hit markets, and demand has likely already started to respond to the sharply lower prices," they said.
Another indication of the physical tightness in the market is that most timespreads are in backwardation, providing an incentive to pull oil from storage, not store it, the analysts said.
"Some markets like WTI and Dubai are in extreme backwardation and even Brent has recently flipped into a backwardation on a spot basis," Goldman Sachs said.
Dated Brent was assessed at 15 cents/b over the North Sea Dated Strip Thursday, up from a 49 cents/b discount September 25.
However, the timespread for one major product -- ICE Brent futures -- exhibits the opposite shape: contango. The front month/second month spread flipped from backwardation to contango July 8.
According to Energy Aspects, oil prices have not been low enough for long enough to cycle through to demand.
Refineries have been running at high rates to capture healthy margins, rather than responding to demand, the consultancy said in a note this week.
"But this will simply transfer the crude overhang to the products market, as refineries run down their crude stocks and essentially translate them into products stocks."
