Crude oil trading outlook: WTI and Brent futures drop, southern Iraq seen safe

WTI and Brent futures were lower during early trade in Europe today. Continued fighting in Iraq failed to lift crude contracts, as traders felt the countrys main oil industry in the south was unhindered by the conflict. Top oil-consuming economies will reveal key data this week.

West Texas Intermediate futures for settlement in August traded for $105.15 per barrel at 7:14 GMT on the New York Mercantile Exchange, down 0.56%. Prices ranged from $105.15 to $105.76 per barrel. The US contract lost about 1% last week.

Meanwhile on the ICE in London, Brent futures due in August stood for a 0.48% drop at $112.76 per barrel at 7:15 GMT. Daily high and low stood at $113.30 and $112.75 per barrel, respectively. Brent’s premium to WTI stood at $7.61, after Fridays closing margin of $7.56. The European contract dropped about 1.3% last week.

“The decline we’ve seen is mainly about traders beginning to get a little nervous about the risk premium built into prices,” Ric Spooner, chief strategist at CMC Markets in Sydney, said for Bloomberg. “It remains a volatile situation, but as time goes by, it does seem that the insurgency will stop around where it is now.”

Iraq

The Sunni-extremist Islamic State in Iraq and the Levant (ISIS) declared the creation of an Islamic state (Caliphate) stretching from Aleppo in Syria to Diyala in Iraq, the BBC reported. The organization demanded all Muslims “pledge allegiance” to its leader and “reject democracy and other garbage from the West”.

Meanwhile, the Iraqi army continues fighting Sunni militants across the country. The military began a strategic offensive against the insurgent-held northern city of Tikrit, but have so far failed to capture it, the BBC reported.

Elsewhere, Israel called for the creation of an independent Kurdish state.

The Kurds “are a nation of fighters and have proved political commitment and are worthy of independence,” Israeli Prime Minister Benjamin Netanyahu said.

The autonomous Kurdish state within Iraq has only recently come under hostile actions by ISIS, and is seen as stout bulwark against the insurgents.

US outlook

The US will post several key readings this week. Pending home sales for May will be revealed on Monday, and analysts expect a 0.8% monthly gain, after 0.4% were logged in April. The real estate industry accounts for about 13% of US GDP.

ISM’s final reading on manufacturing PMI for June will be released on Tuesday, with forecasts of accelerating growth for the factory sector of the US, before a separate report on May factory orders on Wednesday, which are also projected to have grown. ISM will post its non-manufacturing PMI for June on Thursday, and experts suggest accelerating growth in the services sector as well.

Thursday will feature the key report on employment for June. The unemployment rate is set for an unchanged 6.3%, while nonfarm payrolls have probably added 210 000 – 213 000, after a 217 000 figure for May. Payrolls are a leading indicator for the overall health of the economy.

Previously, the US Energy Information Administration (EIA) posted its weekly oil inventories report for the seven day through June 20 on Thursday. The log revealed a 1.742 million-barrel gain for commercial crude oil inventories, while gasoline and distillates added 0.7 and 0.4 million barrels, respectively. Refineries were shown to have operated at an increasing pace of 88.5%, though gasoline production was down almost 10%. Oil at Cushing was slightly more than previously.

China

HSBC, as well as the Chinese government, will release their separate readings on manufacturing PMI for June early on Tuesday. HSBC’s preliminary figure was surprisingly positive, at 50.8, and recently the government’s reports post a higher standing. Thursday will see services PMI readings, again from both sources.

Previously, China, which accounts for 11% of total oil consumption, posted industrial profits for May, for a standing of 8.9% growth on an annual basis, after 9.6% were logged in April. Earlier in the week, HSBC revealed its surprisingly positive reading on Chinese manufacturing PMI. The industrial sector accounts for nearly half of Chinese GDP.

Eurozone

The Eurozone, which accounts for about 14% of total oil demand, will post a key preliminary reading on June CPI later today. Consumer inflation will probably be revealed at 0.5% on an annual basis. Core CPI is expected to stand at 0.7% year-on-year.

Manufacturing PMI for June and unemployment rate for May will be posted on Tuesday, with expectations of little change in both. Thursday will see services PMI for June and retail sales for May, as well as a key European Central Bank (ECB) decision on the benchmark lending rate and deposit rates. The ECB cut both rates last time, for a 0.15% central lending rate and -0.10% deposit rate, which taxes commercial banks if they keep their money out of circulation.

Technical view

According to Binary Tribune’s daily analysis, in case the West Texas Intermediate August future on the NYMEX breaches the first resistance level at $106.18, it probably will continue up to test $106.61. Should the second key resistance be broken, the US benchmark will most likely attempt to advance to $107.04.

If the contract manages to breach the first key support at $105.32, it will probably continue to drop and test $104.89. With this second key support broken, the movement to the downside will probably continue to $104.46.

Meanwhile, August Brent on the ICE will see its first resistance level at $113.71. If breached, it will probably rise and probe $114.11. In case the second key resistance is broken, the European crude benchmark will probably attempt to advance to $114.52.

If Brent manages to penetrate the first key support at $112.90, it will likely continue down to test $112.49. With the second support broken, downside movement may extend to $112.09 per barrel.