Crude oil trading outlook: WTI futures retain gains on declining supplies in the US; China supports

US crude orbited around yesterdays close during early trading in Europe today, keeping most of the gains made after a report on declining supplies in the US. China also logged a sizable buff to crude, as foreign trade in the second-top oil consumer was reported much better than expected. Ukraine still stands as a firm support.

West Texas Intermediate futures for delivery in June traded for $100.54 per barrel at 11:25 GMT on the New York Mercantile Exchange, losing 0.23%, daily prices varied between $100.33 and $100.94 per barrel. Yesterday the US crude benchmark added 1.28% after a bullish report on stockpiles in the US, reaching a weekly high of $100.99 per barrel.

The government report on US oil inventories for the week ended May 2nd revealed stockpiles of crude oil had backed off from all-time high figures for the last two weeks. Supplies stood at 397.6 million barrels, registering a decline of 1.781 million barrels. The decrease contrasts expectations of a 1.2-1.4 million barrel increase, though it’s in-line with APIs report from Tuesday. Domestic production for the week remained virtually unchanged at 8.350 million barrels per day, while imports stood at 6.814 million barrels daily, down from last week’s 7.412 mbd.

Motor gasoline supplies added 1.608 million barrels, exceeding forecasts of 0.017 million barrel increase, while distillates inventories contracted by 0.447 million barrels, far below a projected 0.933 million barrel rise. Refinery utilization rate dropped to 90.2%, after recording 91.0 % for the previous two weeks. Gasoline production picked up pace to settle at 8.992 million barrels daily, up from last week’s 8.623 million barrels per day, while distillates also add to reach 5.039 million barrels daily, up from 4.914 mbd the previous week.

Crude oil in storage at Cushing, the delivery point for WTI, fell by 1.4 million barrels to 24.0 million. Hubs at the Gulf Coast slightly decreased inventories to register 213.4 million barrels for the week.

Previously, a number of reports had fomented bullish sentiment for worlds largest economy, where 21% of the total oil supply is consumed. Exports for March registered the second-highest level on record, a report on Tuesday revealed. Earlier, reports on employment, consumer spending, industrial and services outlooks all generated positive vibes, outscoring expectations and improving on previous figures.

China foreign trade

China also offered support for crude oil, as a report earlier today showed foreign trade had improved significantly in April. Both exports and imports beat expectations of contraction to mark slight gains at 0.9% and 0.8%, respectively. Trade balance had also improved on forecasts to settle at a $18.45 billion surplus, more than double that of March.

More importantly, crude oil imports had increased by 22.4% on a monthly basis to average at 6.78 million barrels daily. Crude imports also exceed figures from a year ago by 11.5%.

“People have been bearish on China, so if we have any good news out of China it should at least provide some support,” said for Reuters Tony Nunan, oil risk manager at Mitsubishi Corp in Tokyo. “Weve seen a lot of negative headlines about China, but as long they can show a decent growth … its supportive for the oil market.”

China accounts for 11% of the world’s oil consumption, and negative industrial outlooks pressure crude contracts. Previously, HSBC’s final reading for April’s manufacturing PMI of China put the figure at 48.1, marking the fourth month in a row to register a contraction in factory activity. The reading is also behind the preliminary standing at 48.3, and below the government’s 50.3 index, which also fell short of expectations.

Ukraine developments

Russian President Vladimir Putin made some steps towards reducing tensions in eastern Ukraine yesterday, as he proposed separatists postpone planned independence referendum. Pro-Russian rebels in the Donetsk region declared a “Peoples Republic” yesterday, and announced an independence referendum to be held on Sunday, May 11th. The insurgents said they will “consider” Putins proposal, the BBC reported.

President Putin went on to add that the presidential election due on May 25th is a step in the right direction, though previously Russian Foreign Minister Sergei Lavrov urged the vote be put-off, in light of the violence in the country. The Kremlin also announced that it is withdrawing troops away from the border, though any Ukrainian or NATO officials have yet to confirm.

“It looks like the geopolitical risks will keep support under prices, but at the same time the market is oversupplied. So I think well just be going sideways for a while,” added for Reuters Nunan.

Previously, confrontations between the military and rebels failed to produce a decisive outcome. Sloviansk remains in militant hands, though blockaded, after a bloody battle earlier this week, while many towns in the Donetsk region are also occupied by separatists, who dont recognize Kievs authority.

Technical view

According to Binary Tribune’s analysis for today, in case West Texas Intermediate June future breaches the first resistance level at $101.25, it probably will continue up to test $101.72. Should the second key resistance be broken, the US benchmark will most likely attempt to advance to $102.46.

If the contract manages to breach the first key support at $100.04, it will probably continue to drop and test $99.30. With this second key support broken, the movement to the downside will probably continue to $98.83.