Crude oil trading outlook: WTI and Brent futures add after supply draws in the US and violence in Iraq

WTI and Brent futures climbed during early hours in Europe today, supported by a reported drop for US crude oil inventories and escalating violence in Iraq, which could threaten the countrys oil output. Key economic readings for the US are due later today, with expectations of improving figures.

West Texas Intermediate futures for settlement in July traded for $104.73 per barrel at 6:56 GMT on the New York Mercantile Exchange, up 0.32%. Prices ranged from $104.35 to $104.73 per barrel. Yesterday the contract added 0.05%, and so far this week the US benchmark has added 1.6%, reaching a three-month high on Tuesday at $105.06 per barrel.

Meanwhile on the ICE in London, Brent futures due in July stood for a 0.58% gain at $110.59 per barrel at 6:57 GMT. Daily high and low stood at $110.59 and $110.00 per barrel, respectively, reaching a two-week high. Brent’s premium to WTI stood at $5.86, widening Wednesdays closing margin of $5.55. Yesterday the contract added 0.39%, and so far this week the European brand has gained more than 1%.

US outlook

Several reports on the US economy, which consumes 21% of all oil, will be posted today. The key preliminary figure on retail sales is expected to stand for 0.4% monthly growth for May, after muted 0.1% increase the previous month. Meanwhile, core retail sales, which exclude automobiles, are expected to record a 0.4% growth on a monthly basis. Retail sales are indicative of consumer spending, which generates about 80% of US GDP.

Also today, jobless claims will be posted, with expectations of unchanged weekly figures at 310 000 new applications and 2.6 million continuing claims. Later, PPI for May will be revealed on Friday, and analysts project a 0.3% gain on a monthly basis and 1.9% year-on-year.

“There should be draws in crude inventories and increases in gasoline stocks; this is the time of year that it should happen,” Jonathan Barratt, chief investment officer at Ayers Alliance Securities in Sydney, said for Bloomberg. “OPEC obviously likes prices at this level. A reason for oil to break through $105 a barrel will be a knee-jerk to something geopolitical.”

Inventories report

The US Energy Information Administration (EIA) posted its weekly oil inventories report for the seven day through June 6 today. The log revealed a 2.596-million-barrel decline, after the private American Petroleum Institute (API) had suggested a 1.5M-barrel increase on Tuesday. A Reuters poll had proposed the same figure as API, while a Bloomberg survey projected a 2M gain. The previous reading, for the week through May 30, showed crude supplies had lost 3.431 million barrels.

Oil at Cushing, Oklahoma, the delivery point for the NYMEX contract and the largest hub in the US, was reported at 21.2 million barrels for a 200 000-barrel drop, after a -0.3M reading was logged for the previous week. Meanwhile, hubs at the Gulf Coast lost 100 000 barrels to stand at 207.0 million, after a massive 6-million-barrel drop last week.

Domestic production of crude oil was logged at 8.460 million barrels per day (bpd), which is minor increase, after an 89 000-bpd drop was reported the previous week. Meanwhile, imports of crude were almost unchanged at 7.146 million bpd. Over the previous two readings inbound shipments declined by 1.4 million barrels daily, almost 20% of current imports.

Gasoline inventories added 1.697 million barrels for the week through June 6, while API had reported a 0.4-million-barrel decline, after last week saw a 210 000 gain. Distillate fuels stockpiles increased by 0.860 million barrels, while API posted a 0.3M drop on Tuesday. Previously, distillates inventories had added 2.012 million barrels in the week through May 30.

Refinery utilization rate was logged at 87.9%, almost 3% down since the previous reading. Over the previous two weeks, the utilization rate had added 2.1%. Gasoline production this week dropped by 0.6 million bpd for a standing of 8.855M bpd, after a slight decline was logged in the previous reading. Meanwhile, gasoline imports dropped 30% to 560 000 bpd, after adding 119 000 bpd last week. Distillates output averaged 4.865 bpd with a drop of nearly 0.4 million bpd, after a 237 000-bpd gain was reported last week.

China, Iraq

A number of key gauges on the Chinese economy, which accounts for 11% of global oil demand, will be reported tomorrow. Foremost, industrial production for May will be posted, and experts suggest a steady 8.8% growth year-on-year, after 8.7% in April. The industrial sector accounts for nearly half of Chinese GDP. Also due on Friday, reports on fixed assets investments and retail sales for May are expected to reveal steady annual growth for both.

Elsewhere, an al-Qaeda-linked group seized Iraqs second city, Mosul, and the countrys largest oil refinery at Baiji.

“There has so far been a muted response in the oil markets to the situation in Iraq after an al-Qaeda splinter group moved in on Iraqs largest refinery at Baiji,” Ric Spooner, chief market analyst at Sydneys CMC Markets, said for Reuters. “It reflects the view that people would want to see further evidence of disruption and more threat to supply,” Spooner said.

Meanwhile, OPEC kept output quota at 30 million barrels per day, in a largely anticipated move.

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 $104.75, it probably will continue up to test $105.10. Should the second key resistance be broken, the US benchmark will most likely attempt to advance to $105.39.

If the contract manages to breach the first key support at $104.11, it will probably continue to drop and test $103.82. With this second key support broken, the movement to the downside will probably continue to $103.47.

Meanwhile, July Brent on the ICE will see its first resistance level at $110.32. If breached, it will probably rise and probe $110.69. In case the second key resistance is broken, the European crude benchmark will probably attempt to advance to $111.13.

If Brent manages to penetrate the first key support at $109.51, it will likely continue down to test $109.07. With the second support broken, downside movement may extend to $108.70 per barrel.