Crude oil futures weekly recap, May 5 – May 9

Both West Texas Intermediate and Brent traded within boundary range this week. Rising tensions in Eastern Europe kept a floor under prices, while a decline in US oil inventories pressured contracts. Significant industrial and economic data due next week.

West Texas Intermediate futures for delivery in June closed for $99.99 per barrel on Friday in New York. The contract lost 0.27% for the day and added 0.24% for the week, after a drop in US supplies. Weekly intraday high and low stood at, respectively, $101.18 per barrel on Friday, as investors weighed risks stemming from the vote in Ukraine on Sunday, and $98.91 per barrel on Monday.

On the ICE in London, Brent futures for settlement in June closed for $107.89 per barrel, to drop 0.14% for the day and settle for a weekly loss of 0.63%. Weekly high and low were at, respectively, $109.02 per barrel on Friday and $106.96 per barrel on Wednesday. Brent’s premium to WTI was at $7.90 as trading for the week closed.

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. Motor gasoline supplies added 1.608 million barrels, while distillates inventories contracted by 0.447 million barrels.

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.

The US consumes about 21% of the world’s oil supply, and inventories impact prices more than most other factors.

Ukraine

An independence referendum is taking place today in the Russian-speaking regions of Luhansk and Donetsk. Rebels disregarded Russian President Vladimir Putin’s pleads to postpone the vote.

Acting Ukrainian President Olesandr Turchynov warned of the economic and social consequences of the vote, which he described as a “step towards the abyss”. “Those who advocate self-determination do not understand that this will mean the total collapse of the economy, of social programs, and of life in general for the majority of people in these regions,” he said.

Organizers of the referendum said they intend to hold another referendum later in the month, this time on whether to join the Russian Federation, the BBC reported.

Earlier, Russia celebrated 69 years since the victory over Nazi Germany on Friday. Moscow witnessed a massive military parade, displaying both hardware capabilities and patriotic fervor. Later in the day Russian President Vladimir Putin flew to the Crimea to attend the parade in Sevastopol. The move was widely condemned by the West and in Ukraine, calling it “regretful”, “inappropriate”, “provocative and unnecessary” and a “gross violation of Ukraine’s sovereignty”.

In Ukrain itself, Mariupol, a town in the Donetsk region, was the scene of heavy fighting on Firday, which left at 7 people dead, Ukraine’s Interior Minister Arsen Avakov said.

China, Libya, Iran

A report on Friday revealed consumer prices in China had fallen short of expectations and registered a 0.3% deflation on a monthly basis, and 1.8% growth from a year ago. Producer prices fell 2.0% on an annual basis.

“It seems China is catching a whiff of that deflationary problem,” Yao Wei, China economist at Societe Generale told CNBC. “For an economy with a nominal GDP growing at 8 percent, this is an extremely low level of inflation, or rather deflation actually.”

A significant slowdown of growth in China, which consumes 11% of the world oil supply could prompt the government to ease monetary policy.

Elsewhere, a deal between Libya’s government and rebels occupying two oil-exporting ports in the east seems less likely, after an appointment of an Islamist-backed PM fueled distrust between the parties.

“Libya’s two most important oil terminals, Ras Lanuf and Es Sider, will remain shut for the foreseeable future which is likely to continue to severely hamper the supply of oil,” said analysts at Commerzbank in a note.

Iran is also in focus, as negotiations between Tehran and six world powers over the nuclear capabilities of the country had given “useful” results. Sanctions limit Iran’s oil exports, and a possible breakthrough could result in a surge of fresh oil supplies in the markets, which would push down on prices.

Outlook

Traders will be awaiting results from the referendum in Ukraine, as well as further developments with the crisis. The possibility of fresh sanctions against Moscow is very real, and an escalation of the conflict in the troubled state could very well lead to sizable boosts to the risk premium of energy products.

In addition to developments in Eastern Europe, next week will feature a number of important economic reports.

Early on Tuesday, a report on industrial production for April in China is projected to show the sector has grown by 8.7-8.9% on an annual basis, in line with the figure from last year of 8.8%.

Later in the day, US retail sales for April are forecast to have added 0.4%, down from an upward-revised 1.2% growth for March, while core retail sales are expected to show a 0.6% growth after 0.7% the previous month.

On Wednesday, the Eurozone will post industrial production results for the month of March. Analysts predict a 0.3% monthly contraction and a 1.0% annual growth. Also on Wednesday is the weekly oil inventories report for the US.

On Thursday, the US will also report important figures. Core CPI, which excludes the volatile food and energy costs, is forecast to have added 0.1% on a monthly basis for April, after 0.2% for March, while annually the growth would be at 1.7%. The Philadelphia and New York manufacturing gauges for May are projected to stand at 14.0 and 6.0, respectively, from 16.6 and 1.29 the previous month, indicating slightly worsening business conditions in Phillie and improvement in New York.

Technical view

According to Binary Tribune’s analysis for Monday, in case West Texas Intermediate June future breaches the first resistance level at $100.88, it probably will continue up to test $101.76. Should the second key resistance be broken, the US benchmark will most likely attempt to advance to $102.35.

If the contract manages to breach the first key support at $99.41, it will probably continue to drop and test $98.82. With this second key support broken, the movement to the downside will probably continue to $97.94.

Meanwhile, Brent will see its first resistance level at $108.77. If breached, it will probably rise and probe $109.56. In case the second key resistance is broken, the European crude benchmark will probably attempt to advance to $110.11.

If Brent manages to penetrate the first key support at $107.35, it will likely continue down to test $106.80. With the second support broken, downside movement may extend to $105.97 per barrel.