Crude oil trading outlook: WTI and Brent futures were steady at high levels with lasting support from US supplies

WTI futures remained near an 11-week high early in Europe, while Brent was also orbiting a monthly peak. Falling US supplies are still the major force supporting crude contracts. Improving sentiment for China, the EU and mixed economic data from the US were unable to further elevate oil, after it reached “preposterously high” levels. Elsewhere, deadly attacks on the military in eastern Ukraine strained tensions in the country, ahead of the presidential election on Sunday.

West Texas Intermediate futures for settlement in July traded for $103.90 per barrel at 7:17 GMT on the New York Mercantile Exchange, up 0.15%. Prices ranged from $103.64 to $103.91 per barrel. Yesterday the US benchmark declined by 0.32%. So far this week, the contract has added 2.12%, reaching a monthly high of $104.29 per barrel on Wednesday in light of falling crude supplies in the US.

Meanwhile on the ICE in London, Brent futures due in July recorded a 0.14% gain to trade for $110.51 per barrel at 7:07 GMT. Daily high and low stood at $110.52 and $110.33 per barrel, respectively. Brent’s premium to WTI stood at $6.61, in line with Thursdays closing margin of $6.62. Yesterday the European brand lost 0.17%, and for the past four sessions the contract has gained 0.55%, reaching an 11-week high of $110.73 per barrel on Wednesday.

The weekly Energy Information Administration report, released on Wednesday, revealed that crude oil stockpiled in the US had dropped by almost 8 million barrels in the week ended May 16. The decline was due, primarily, to a sharp decrease in imports, which fell by almost 0.7 million barrels per day (bpd). Oil at Cushing was also drawn to stand at 23.2 million barrels. Previously, commercial reserves of crude oil in the US were pushing record-high readings for the past two months, and they still remain in the vicinity of historic highs.

“I find $104 WTI a bit preposterous given how ample supplies are but I wouldn’t recommend standing in the way of this,” said for Bloomberg Stephen Schork, president of the Schork Group Inc. in Villanova, Pennsylvania. “There’s still ample crude.”

Gasoline supplies added 0.970 million barrels, amid a 14 000 bpd decline in domestic production and a 120 000 bpd growth in imports. Distillates inventories grew by 3.4 million in light of increasing production and more imports.

“The inventory draw is the key factor for oil this week,” said for Bloomberg Michael McCarthy, chief strategist at CMC Markets in Sydney. “There’s an anticipation of further increased demand as we head into the driving season during summer in the US.”

US economic data was mixed this week. Jobless claims were more than expected, though manufacturing PMI for May grew to record a 56.2 preliminary standing. Existing home sales also added, but less than expected. New home sales will be reported later today.

The EU also logged economic readings on Thursday, fore a generally improving outlook. Manufacturing PMI for May was projected at 52.5, below the expected 53.2 and trailing Aprils 53.4 figure. The reading still means an expansion is taking place for factories in the EU, but at a slower pace. Services PMI was put at 53.5, above the forecast 53.0 and gaining on Aprils 53.1.

Elsewhere, Chinas HSBC/Markit manufacturing PMI for May was revealed yesterday. The preliminary data put the figure at 49.7, well above expectations of 48.1, though still below the 50.0 contraction/expansion mark. April had recorded a significant slowdown in factory activity, with HSBC logging 48.1.

Ukraine

Ukraines military experienced the deadliest attack on its troops early on Wednesday. At least 14 soldiers were killed and a reported two dozen injured. Ukrainian officers told the BBC that the attack was carried out by mercenaries, and not the separatists.

Earlier, a pro-Russian leader in Donetsk went on Facebook and Twitter to deny that the rebels had attacked the military checkpoint.

Ukraine is preparing to hold a presidential election on May 25, and in the run-up to the vote all developments will be closely watched. Kiev hopes the election will soften the conflict, though the eastern rebels have long since declared they will boycott the vote, and will try to incorporate the separatist regions in the Russian Federation.

Libya also continues to fuel concern, as protests closed the headquarters of an oil company on Thursday. Libyas output was at 230 000 bpd as of Wednesday, in contrast with the 1.4 million a year ago.

The country will hold a general election on June 25, as authorities attempt to quell unrest, which took the lives of over 100 people since last Friday.

Technical view

According to Binary Tribune’s daily analysis, in case the West Texas Intermediate July future on the NYMEX breaches the first resistance level at $104.12, it probably will continue up to test $104.51. Should the second key resistance be broken, the US benchmark will most likely attempt to advance to $104.79.

If the contract manages to breach the first key support at $103.45, it will probably continue to drop and test $103.17. With this second key support broken, the movement to the downside will probably continue to $102.78.

Meanwhile, July Brent on the ICE will see its first resistance level at $110.88. If breached, it will probably rise and probe $111.39. In case the second key resistance is broken, the European crude benchmark will probably attempt to advance to $111.75.

If Brent manages to penetrate the first key support at $110.01, it will likely continue down to test $109.65. With the second support broken, downside movement may extend to $109.14 per barrel.