Crude oil trading outlook: futures advance with the conflict in Ukraine, the West prepares more sanctions

Both West Texas Intermediate and Brent futures gained during early European trading on Monday. The deepening of the crisis in Ukraine spells fears over security of supplies from Russia – the worlds top energy producer. Diplomats from the US and EU will meet later today to discuss intensifying the sanctions against Moscow. Meanwhile, the record-high levels of crude reserves in the US pressure oil prices.

West Texas Intermediate futures for settlement in June traded for $101.38 per barrel at 7:33 GMT on the New York Mercantile Exchange, adding 0.78%. Daily high and low stood at $101.42 and $100.49 per barrel respectively, reaching the lowest intra-day price in three weeks. Over the last four sessions the US crude benchmark lost 2.95%, pressured by US oil inventories.

Meanwhile on the ICE, Brent futures due in June registered a 0.41% gain to trade for $110.03 per barrel at 7:33 GMT, prices ranging from $109.41 to $110.13 per barrel. During Fridays session the European brand reached the highest price level since early March at $110.63 per barrel. Brent’s premium to WTI stood at $8.65.

The conflict in Ukraine is brewing with ever-greater intensity. On Friday the confrontation reached a new level, when a group of international observers from the Vienna-based Organization for the Security and Cooperation in Europe (OSCE), along with their Ukrainian guides, were abducted by pro-Russian militants near the town of Sloviansk. The group includes nationals from Germany, Poland, the Czech Republic, Denmark and Sweden. Masked and armed separatists marched the captured before cameras on Sunday, in a move described by Germany as “revolting”. The separatists later released one of the captives due to a medical condition requiring treatment, but also said they had no intention of freeing the others. Negotiations for the release of the observers are underway, Russia saying it will help as much as possible with the situation.

The US and EU have condemned the evident lack of commitment from the Kremlin in implementing the agreed-upon measures in Geneva, US President Barack Obama saying “not a single Russian official has lifted a finger.” Western diplomats will hold high-level talks today, with the goal of agreeing further and tougher sanctions against Moscow. The BBC reported that, according to sources familiar with developments, this round of assets-freezes and travel-bans may target individuals at the top of Russias energy industry.

Elsewhere in Ukraine, Odessa – a port-town away from the eastern regions of the country, saw an explosion at a checkpoint injure a number of people on Friday, the BBC reported, in a sign of possible widening anti-government sentiment across the country. In Kharkiv football fans supporting a unified Ukraine battled pro-Russia supporters on Sunday, leaving many injured, while in Donetsk militants took control of the regional TV headquarters, demanding it start broadcasting a Russian state TV channel.

Last week saw the resumption of the Ukrainian governments “anti-terrorist” operation against pro-Russian separatists in the eastern regions of the country. The pro-western authorities in Kiev reported that they had killed a number of militants, which prompted the Kremlin to order military drills and exercises near the Russian-Ukrainian border. “If the conflict between the countries escalates, increased fuel demand for military use and heightened risk of disruption will likely continue to strengthen global oil prices,” Barclays analysts said in a note over the weekend.

Demand in the US

Oil prices find significant resistance in the face of all-time-high crude inventories and lower-than-expected gasoline demand in the US. Despite the higher refinery utilization rate at 91.0%, crude oil supplies rose by 3.524 million barrels in the week through April 18th, to reach 397.7 million, exceeding expectations of a 2.3-million barrels increase. Motor gasoline and distillates figures also fanned significant negative sentiment, gasoline inventories dropping by 0.274 million barrels for the week, far below expectations of a 1.713-million decline, while distillate fuels gained 0.597 million barrels in supplies, in contrast to a forecast of a 0.463-million decline.

Meanwhile, the US economy is gaining momentum. Reports on durable goods orders and jobless claims last week added to the picture of a solid recovery for the worlds top economy. This week will be quite busy, as a number of major economic figures for the US will be released, with pending homes sales, Consumer Confidence Index, GDP growth and manufacturing PMI all set to reveal a stronger US, suggesting increased demand in the worlds top oil consumer.

Technical view

According to Binary Tribune’s daily analysis, in case WTI June crude manages to breach the first resistance level at $100.97, it will probably continue up to test $101.34. In case the second key resistance is broken, the US benchmark will probably attempt to advance to $101.58.

If the contract manages to breach the first key support at $100.36, it will probably continue to slide and test $100.12. With this second key support broken, the movement to the downside will probably continue to $199.75.

Meanwhile, Brent will see its first resistance level at $110.39. If breached, it will probably rise and test $111.20. In case the second key resistance is broken, the European crude benchmark will probably attempt to advance to $111.77.

If Brent manages to penetrate the first key support at $109.01, it will likely continue down to test $108.44. With the second support broken, downside movement may extend to $107.63 per barrel.