Crude oil trading outlook: WTI and Brent futures steady as US holiday underway

WTI and Brent futures were steady over electronic trading during early hours in Europe today. Shockingly improving employment figures from the US were unable to lift crude higher, as Libya supply prospects grew and US inventories were drawn. Iraq worries eased, though militants held firm.

West Texas Intermediate futures for settlement in August traded for $103.89 per barrel at 6:15 GMT on the New York Mercantile Exchange, down 0.09%. Prices ranged from $104.12 to $103.84 per barrel. The US contract dropped 0.40% yesterday, and so far this week WTI has lost about 1.6%.

Meanwhile on the ICE in London, Brent futures due in August stood for a 0.08% gain at $111.09 per barrel. Daily high and low stood at $111.12 and $110.93 per barrel, respectively. Brent’s premium to WTI stood at $7.20, after last session’s closing margin of $6.94. The European contract dropped 0.22% on Thursday, and so far this week Brent has also lost about 1.5%.

“The dying down of geopolitical tensions is clearly depressing oil prices,” Michael McCarthy, chief strategist at CMC Markets in Sydney, said for Bloomberg today. “The market is removing some of the risk premium. West Texas has now fallen below the key support level of $105.25 a barrel, meaning that risks are now on the downside.”

US reports

Key US employment data was revealed yesterday. Nonfarm payrolls for June increased by 288 000, which is a four-year peak. ADP posted a 281 000 figure on Wednesday, and analysts had earlier suggested a growth of about 210 000. The unemployment rate dropped to 6.1%, which is the lowest rate since September 2008.

“The job numbers are telling us that the economy is healthy, and people don’t need a lot of safe haven going forward,” Alfonso Esparza, a senior currency analyst in Toronto at Oanda Corp., said in a telephone interview for Bloomberg. “Gold will probably now start weakening again.”

Meanwhile, initial jobless claims for the week ended June 28 were slightly more than before at 315 000, and continuing applications for benefits for the week through June 21 were at 2.579 million, also logging a minor increase.

Also yesterday, ISM posted its non-manufacturing PMI for June, for a reading of 56.0, slightly below expectations and the figure from last month, but standing for a sizable growth in the sector nonetheless. A reading of 50 or higher means expansion of economic activities, and vice versa. The bigger the distance from 50, the greater the pace of contraction or expansion. The services sector accounts for about 80% of US GDP.

Previously, ISM revealed its June manufacturing for the US yesterday, for a slightly worse-than-expected growth, but still standing for a considerable growth for the factory sector.

Oil inventories

The US Energy Information Administration (EIA) posted its weekly oil inventories report for the seven day through June 27 yesterday. The log revealed a 3.155 million-barrel draw for commercial crude oil inventories, gasoline stocks dropped 1.235 million barrels, while distillates added 0.975 million barrels.

Refineries picked up pace, with gasoline production adding some 5% as summer driving season enters peak period.

Iraq

Iraqi military have had inconclusive fights with militants for the city of Tikrit. The army was urgently reinforced by Russian and Belorussian fighter aircraft, purchased by the government in haste. Elsewhere, militants tighten their grip on the northern provinces of the country, with the Kurdish semi-autonomous state recently joining the fight against the jihadists.

In Baghdad, the Iraqi government failed to elect a new leadership earlier this week, as Sunni-Muslim and Kurdish representatives boycotted the vote and the election body failed to reach a quorum. The current Iraqi government, led by PM Maliki, is said to be quite exclusive of ethnicities other than Shia-Muslims, which represent about 65% of Iraq’s population.

The Kurdish semi-autonomous government in northern Iraq has recently come under attack by ISIS, and its military is seen as stout defense of the major northern oilfield around Kirkuk. The Kurds occupied Kirkuk, which lies beyond the autonomous government’s borders, after the Iraqi army fled from the Islamists. Now the Kurds, who have long yearned independence, claim they will not leave Kirkuk before an independence referendum takes place.

The Iraqi government insists insurgents do not threaten Baghdad, nor the southern oilfields, which account for more than 75% of Iraqi oil output. Furthermore, the Iraqi oil minister said production and exports will actually increase over the next month.

Iraq is OPEC’s second-top oil producer, and exports some 3 million barrels per day from its main southern terminal at Basra.

Libya

Two oil-exporting ports in eastern Libya have been reopened after being closed for almost a year due to insurgency. The Es Sider and Ras Lanuf facilities are Libya’s biggest and third-biggest ports, and have a combined potential exporting capabilities of more than 0.5 million barrels per day. If they indeed reach optimal capacity they will increase Libya’s output five times, Bloomberg reported.

The rebels who had occupied the ports have handed them over to the newly elected government as a sign of support.

Libya’s output has dwindled since the ousting of former dictator Muammar Qaddafi, with exports dropping from 4 million barrels per day, to some 150 000 earlier this year. Libya holds Africa’s largest crude oil reserves.

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 $104.34, it probably will continue up to test $104.63. Should the second key resistance be broken, the US benchmark will most likely attempt to advance to $104.96.

If the contract manages to breach the first key support at $103.72, it will probably continue to drop and test $103.39. With this second key support broken, the movement to the downside will probably continue to $103.10.

Meanwhile, August Brent on the ICE will see its first resistance level at $111.27. If breached, it will probably rise and probe $111.54. In case the second key resistance is broken, the European crude benchmark will probably attempt to advance to $111.91.

If Brent manages to penetrate the first key support at $110.63, it will likely continue down to test $110.26. With the second support broken, downside movement may extend to $109.99 per barrel.