Crude oil trading outlook: futures drop some gains as US crude supplies rose ahead of driving season; Ukraine talks

Crude oil futures declined during late Asian and early European trading today, as growing crude oil supplies weighed on investors sentiment. Yesterday US markets read the weekly oil supplies report as bullish, in light of falling gasoline stocks, despite a growth in production, in addition to further drops at Cushing. Ukraine peace talks began in Kiev, though they seem unlikely to produce an effective resolution since the eastern rebels are not represented.

West Texas Intermediate futures for settlement in June traded for $101.95 per barrel at 7:22 GMT on the New York Mercantile Exchange, losing 0.41%, daily prices between $101.90 and $102.13 per barrel. Yesterday the contract added 0.66%, reaching a three-week high of $102.65 per barrel, after a further 1.70% rise for the previous two sessions.

Meanwhile on the ICE in London, Brent futures due in July recorded a 0.30% drop to trade for $108.98 per barrel at 7:14 GMT. Prices ranged from $108.94 to $109.37 per barrel. Brent’s premium to WTI July contracts stood at $7.54, in line with last session’s $7.57 closing margin. Yesterday the European benchmark added 0.71%, reaching a midday two-week high of $109.55 per barrel, after a further 1.41% increase over the previous two sessions.

Yesterday the government report on US oil inventories for the week ended May 9th revealed commercial stockpiles of crude oil had risen to 398.5 million barrels, recording a growth of 0.947 million barrels. The increase exceeded expectations of modest gains, though is in line with earlier data by the private American Petroleum Institute (API), which logged at a 0.912 million barrel increase. The rise comes after a 1.781 million barrel decrease last week. Domestic production for the week averaged 8.428 barrels daily, adding 78 000 bpd on last week’s figure. Meanwhile, imports grew with 242 000 barrels per day to score 7.127 mbd.

Motor gasoline stocks have decreased by 0.772 million barrels, well above API’s reported 2.020 million decline, though below expectations of modest gains. Distillates stocks lost 1.124 million barrels, adding on last week’s 0.447 million barrel slip. Refinery utilization rate stood at 88.8% after 90.2% for the previous reported week. Gasoline production averaged 9.606 million barrels daily, gaining 0.614 mbd on the previous reading, while distillates were produced at a rate of 4.911 million barrels daily, slowing by 0.128 mbd.

Crude oil in storage at Cushing, the delivery point for WTI, fell by another 0.6 million barrels to 23.4 million. Hubs at the Gulf Coast added 2.3 million to stand at 215.7 million barrels.

“Asian investors are instead looking at the overall build in U.S. crude inventories, though, causing oil prices to fall in trading on Thursday,” said for Reuters Jonathan Barratt, chief executive of commodity research firm Barratt Bulletin in Sydney, in regard to mixed sentiment stemming from the US report. “There are more reasons to sell rather than to see U.S. oil push up to $104-105. Inventory levels are at 25-year highs, Libya is coming on tap.”

Libya opened western oilfields and pipelines, after they were closed by protests, increasing supply outlooks from Africas biggest reserves holder. As of Tuesday Libyas oil output was at 235 000 barrels daily, while the country has a potential of 4 million barrels per day.

Ukraine

Kiev began talks with political and civic leaders in an attempt to devise a way out of the crisis, which has dominated the geopolitical scene for the past months. However, separatist militia were not represented. Acting Ukrainian President Olexandr Turchynov said Kiev was prepared to listen to rebels, but they must lay down their arms first, the BBC reported.

The round table comes in light of Germany’s Foreign Minister Frank-Walter Steinmeier’s visit to Ukraine, and is part of the Organisation for Security and Co-operation and Europe’s (OSCE) “roadmap” out of the crisis. The organization said Russian President Vladimir Putin backed the presidential vote, which is taking place on May 25th.

However, Russian Foreign Minister Sergei Lavrov said Ukraine was as close to civil war as it can get, speaking for Bloomberg Television. He added that in the eastern regions there is already a “real war” between rebels and government forces, questioning the legitimacy of an election in wartime circumstances. Indeed, the conflict continues to rage on, as seven Ukrainian military personnel were killed in an ambush by rebels near the town of Kramatorsk in Donetsk region on Tuesday.

Donetsk and Luhansk regions declared independence, following the referendum on Sunday. Separatist leaders said all Ukrainian troops in the provinces will be regarded as “occupying” forces. The Kremlin said it expects the “will of the people be implemented,” though has yet to comment on the rebels’ requests for Moscow to incorporate the regions in the Russian Federation.

“Geopolitical fears are a key factor at least for Brent. Given the environment, you are not yet going to see a declaration of peace,” said for Reuters Michael McCarthy, chief market strategist at CMC Markets in Sydney.

Technical view

According to Binary Tribune’s daily analysis, in case West Texas Intermediate June future breaches the first resistance level at $102.74, it probably will continue up to test $103.10. Should the second key resistance be broken, the US benchmark will most likely attempt to advance to $103.56.

If the contract manages to breach the first key support at $101.92, it will probably continue to drop and test $101.46. With this second key support broken, the movement to the downside will probably continue to $101.10.

Meanwhile, Brent will see its first resistance level at $109.70. If breached, it will probably rise and probe $110.08. In case the second key resistance is broken, the European crude benchmark will probably attempt to advance to $110.62.

If Brent manages to penetrate the first key support at $108.78, it will likely continue down to test $108.24. With the second support broken, downside movement may extend to $107.86 per barrel.