Crude oil trading outlook: futures head for weekly gains with support from Ukraine; US economic data

Crude oil futures traded higher during early hours in Europe today, recovering some losses from last sessions retreat. Yesterday contracts lost, as traders had selling in mind, after crude supplies in the US were reported to be near record levels on Wednesday. Peace talks began in Kiev yesterday, 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 $101.78 per barrel at 7:19 GMT on the New York Mercantile Exchange, adding 0.28%, daily prices between $101.54 and $102.04 per barrel. Yesterday the contract lost 0.85%. On Wednesday the contract reached a three-week high of $102.65 when Asian traders saw growing gasoline demand and falling inventories at Cushing as bullish. The US benchmark is headed for a weekly gain, rallying 1.51% so far this week.

Meanwhile on the ICE in London, Brent futures due in July recorded a 0.13% rise to trade for $109.23 per barrel at 7:09 GMT. Prices ranged from $108.96 to $109.45 per barrel. Brent’s premium to WTI July contracts stood at $7.82, narrowing last session’s $7.96 closing margin. Yesterday the European benchmark lost 0.20%, though it did reach a midday two-week high of $109.65 per barrel. The EU brand is also headed for a weekly rise, adding 1.69% over the course of the last four trading days as Ukraine supported.

Ukraine

Yesterday 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.

“The risk is the outbreak of war and for that reason we have an upward bias,” said for Bloomberg Michael McCarthy, chief strategist at CMC Markets in Sydney. “The longer the situation drags on without a conflagration, the less it weighs on traders’ minds. It’s certainly an issue at the moment.”

US economic data, oil supplies

Yesterday a number of positive reports boosted sentiment for the US economy, which consumes 21% of total oil supply. The US logged annual CPI at 2.0% for the month of April, while Core CPI was at 1.8%. Monthly figures were at 0.3% for CPI and 0.2% for the core. CPI is a main component of inflation, and nearing the targeted 2.0% annual inflation, which indicates a healthy economy, boosts the dollar and attracts investments towards riskier equities and away from havens.

Elsewhere in the economy, US continuing jobless claims for the week through May 10th stood at 2.667 million, down 9 000, a separate report revealed today. Initial claims were at 297 000, falling from last week’s 321 000, and recording the lowest level since 2007.

US industrial production for April was also reported yesterday. Output was logged to have fallen by 0.6%, behind expectations of leveled growth. Contrasting the decline in industrial output, the New York Empire State Fed Manufacturing Index recorded 19.01 for May, thrashing expectations of a 5.0 figure and rocketing up from April’s 1.29. Philadelphias Fed index also exceeded forecasts to log at 15.4.

However, in anticipation of the reports traders already had a selling sentiment, and contracts dropped even with the overall upbeat US data. “The fundamentals are starting to weigh on WTI,” said for Bloomberg Gene McGillian, analyst and broker at Tradition Energy in Stamford, Connecticut. “It’s hard to justify WTI at over $100 when inventories are near record highs while production is at the highest level in decades.”

US crude oil supplies were reported to have grown for the week ended May 9th, a government report revealed on Wednesday. Inventories added 0.947 million barrels to stand at 398.5 million. Meanwhile, gasoline stocks declined by 0.772 million barrels, despite a 6.4% increase in production, signaling driving season is due, and distillates also lost.

Elsewhere, 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.

Technical view

According to Binary Tribune’s daily analysis, in case West Texas Intermediate June future breaches the first resistance level at $102.08, it probably will continue up to test $102.67. Should the second key resistance be broken, the US benchmark will most likely attempt to advance to $103.07.

If the contract manages to breach the first key support at $101.09, it will probably continue to drop and test $100.69. With this second key support broken, the movement to the downside will probably continue to $100.10.

Meanwhile, Brent will see its first resistance level at $109.55. If breached, it will probably rise and probe $110.01. In case the second key resistance is broken, the European crude benchmark will probably attempt to advance to $110.37.

If Brent manages to penetrate the first key support at $108.73, it will likely continue down to test $108.37. With the second support broken, downside movement may extend to $107.91 per barrel.