Crude oil trading outlook: WTI fell as US oil inventories showed robust figures, Brent supported by Iraq

WTI and Brent futures gained during early trade in Europe today. The US revealed weekly figures on oil inventories yesterday, pressuring the US benchmark. Meanwhile, the conflict in Iraq continues to push crude contracts higher.

West Texas Intermediate futures for settlement in July traded for $106.61 per barrel at 6:36 GMT on the New York Mercantile Exchange, up 0.60%. Prices ranged from $106.00 to $106.63 per barrel. The US contract dropped 0.37% yesterday, and so far this week has lost about 0.9%, after a nine-month high was reached last week.

Meanwhile on the ICE in London, Brent futures due in August stood for a 0.41% gain at $114.73 per barrel at 6:36 GMT. Daily high and low stood at $114.75 and $114.21 per barrel, respectively, reaching a nine-month high. Brent’s premium to August WTI stood at the quite significant $8.51, after last session’s closing margin of $8.67. The European contract added 0.71% on Wednesday, and so far this week has added more than 1.5%.

“The crude market is telling us the importance of Iraq,” Jonathan Barratt, chief investment officer at Ayers Alliance Securities in Sydney, said for Bloomberg. “The concerns are smoldering and that keeps oil up. The EIA numbers are in line with what you’d expect this time of year.”

US oil inventories

The US Energy Information Administration (EIA) posted its weekly oil inventories report for the seven day through June 13 yesterday. The log revealed a 0.579 million-barrel drop, after the private American Petroleum Institute (API) had suggested a 5.7 million-barrel drop on Tuesday. A Bloomberg survey projected a 0.750 million-barrel gain. The previous reading, for the week through June 6, showed crude inventories had lost 2.6 million barrels.

Oil at Cushing, Oklahoma, the delivery point for the NYMEX contract and the largest hub in the US, was reported at 21.4 million barrels for a 0.2 million-barrel gain, after a drop of 200 000 was logged for the previous week. Meanwhile, hubs at the Gulf Coast dropped 1.2 million barrels, after further 100 000 were drawn last week. Previously, the week ended May 30 saw a massive 6-million-barrel drop for hubs at the Gulf.

Domestic production of crude oil was logged at 8.477 million barrels per day (bpd), for a second minor weekly growth. Meanwhile, imports of crude were at 7.234 million bpd, 90 000 bpd more than last week. Inbound shipments of crude have declined by about 1.4 million bpd over the past month, almost 20% of current imports.

Gasoline inventories added 0.785 million barrels for the week through June 13, while the API had reported a 48 000-barrel decline. Last week saw 1.7 million barrels added. Distillate fuels stockpiles levels grew by 0.436 million barrels, while the API posted a 0.531 million-barrel gain on Tuesday. Previously, distillates inventories had added 0.9 million barrels in the week through June 6.

Refinery utilization rate was slightly down for a standing of 87.1%, after a 3% drop was logged in the previous reading. Gasoline production this week grew by almost 1 million bpd, more than 10%, for a standing of 9.840 million bpd. A 0.6 million-bpd decline was recorded last week. Distillates output averaged 4.732 million bpd with a weekly decline of 100 000 bpd, after a 0.4 million-bpd decline was reported last week.

Iraq

Sunni militants, led by a group of extremists called ISIS (Islamic State in Iraq and the Levant), continue to advance towards the Iraqi capital of Baghdad. Bitter fighting was reported some 60km north of the city, while more battles were fought to the west of Baghdad. Citizens have been reported to be stockpiling food and water, the BBC reported

Meanwhile, the Iraqi military commander of the province of Nineveh, which first came under attack from the Islamist, was dismissed by the Iraqi government, for failing to stop the militants from taking key cities. The city of Tikrit was said to house some 30 000-strong garrison of government troops, who fled when attacked by only several hundred insurgents.

Authorities have assured the populace that the rebels will not take Baghdad, and that food supplies are not in danger. They have also expressed confidence in a planned rapid counteroffensive. Also, they reinstated that the southern oilfields, which account for 90% of Iraqi oil output, were completely safe.

Iraq is OPEC’s second-top oil producer, and exports some 5-6 million barrels per day from its main terminal at Basra.

“Exports haven’t been affected yet, so the price gain we’ve seen so far is only on speculation that things might deteriorate further and instability will spread to the south of Iraq,” Ben Le Brun, a markets analyst at OptionsXpress in Sydney, said for Reuters. “But as soon as we hear about production affected, then we will start to see the price move up more dramatically. But it’s very hard to put a figure on this. In a worst case scenario, Brent could go above $120 at a minimum.”

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 $106.69, it probably will continue up to test $107.42. Should the second key resistance be broken, the US benchmark will most likely attempt to advance to $107.86.

If the contract manages to breach the first key support at $105.52, it will probably continue to drop and test $105.08. With this second key support broken, the movement to the downside will probably continue to $104.35.

Meanwhile, August Brent on the ICE will see its first resistance level at $114.85. If breached, it will probably rise and probe $115.44. In case the second key resistance is broken, the European crude benchmark will probably attempt to advance to $116.34.

If Brent manages to penetrate the first key support at $113.36, it will likely continue down to test $112.46. With the second support broken, downside movement may extend to $111.87 per barrel.