Crude oil futures trading outlook: WTI and Brent decline on bearish fuel supplies

West Texas Intermediate crude fell for a fourth straight day after the Energy Information Administration reported US fuel supplies rose in the week ended July 25th as average consumption shrank, signalling softening demand during the peak driving season. At the same time, OPECs crude output rose in July from June. Brent traded little over the lowest level in nearly four months. A firm dollar also helped push the market down, while concerns of disruptions in Russias energy exports, albeit slim, provided some support.

On the New York Mercantile Exchange, WTI crude for delivery in September fell by 0.94% to $99.33 per barrel by 7:13 GMT. Prices held in a daily range between $99.71 and $99.16, the lowest level in two weeks. The contract fell by 0.69% on Wednesday to close at $100.27, marking a third straight session of losses. The US crude benchmark is en route to post a 6% monthly decline, which would be the biggest since October.

Meanwhile on the ICE, Brent futures for settlement in the same month slid by 0.68% to $105.79 a barrel. Prices shifted between a daily high of $106.33 and days low at $105.72, close to yesterdays two-week low of $105.84 a barrel. The European crude benchmark fell by 1.12% to $106.51 a barrel on Wednesday and has fallen more than 5% this month, which would be the biggest decline since October.

Both crude benchmarks were additionally pressured to the downside after the Energy Information Administration reported yesterdat that both gasoline and distillate fuel supplies gained in the seven days through July 25th.

Motor gasoline inventories rose by 0.365 million barrels to 218.2 million, the highest since March. This was below analysts’ projections for a 1-million jump, but also trailed API’s data which had shown on Tuesday a 60 000-barrel increase. Consumption of the fuel slid by 0.5% over the last four weeks to 8.95 million barrels per day, the lowest since May.

Distillate fuel stockpiles, which include diesel and heating oil, added 0.789 million barrels to stand at 126.7 million, the most since September. Analysts had expected a 1.5-million-barrel increase.

US crude oil inventories fell for a fifth week by 3.7 million barrels to 367.4 million in the seven days through July 25th, exceeding forecasts for a 1.25-million drop. Supplies at Cushing, Oklahoma, the biggest US storage hub, dropped to 17.9 million barrels, the lowest since October 2008, down from 18.8 million a week earlier.

Despite the drop in overall crude inventories, the market mainly eyed the gasoline numbers as a gauge of fuel demand during the peak driving season.

Global supply

The market was additionally pressured after a Reuters survey showed that OPEC increased its crude output in July, compared to June, despite turmoil in some of its members, reinforcing the bearish sentiment. Crude supply from the US has also jumped as outbound shipments jumped to 288 000 barrels per day in May, the Energy Information Administration reported, reaching the highest level in more than 15 years.

Oil also couldnt be lifted by a much positive economic outlook for the US after the Commerce Department reported on Wednesday that the worlds biggest economy expanded by 4.0% in the second quarter, exceeding economists’ forecasts for a 3.0% growth. The first three months reading received an upward revision to show a contraction of 2.1%, up from initially estimated at -2.9%.

A strong dollar also pressured down both benchmarks. The greenback extended its upward movement after the FOMC kept on track to trim Feds monthly bond purchases by $10 billion at each meeting, cutting the asset buying to $25 billion per month.

The US dollar index for settlement in September stood at 81.530 on the ICE US at 7:09 GMT, up 0.02% on the day, having shifted in a daily range between 81.530 and 81.465. The US currency gauge surged to a six-month high of 81.645 on Wednesday and closed the day 0.25% higher at 81.516. A stronger dollar makes dollar-priced commodities pricier for foreign currency holders and limits their appeal as an alternative investment.

Despite the lack of concern of oil disruptions from Iraq and fears of Libyan supply drops already being priced in, some analysts feared a drop in Russian energy exports as they awaited Vladimir Putins response to the recently expanded sanctions against Russia.

Gordon Kwan, head of Asia oil and gas research at Nomura in Hong Kong, said for CNBC: “Now that both the EU and the U.S. have stepped up measures to prevent some Russian companies from accessing the capital markets, this could perhaps mean disappointing oil exports from Russia. That, together with the Gaza tensions, could be a good support for Brent prices.”

Technical view

According to Binary Tribune’s daily analysis, in case West Texas Intermediate September futures breach the first resistance level at $101.49, they will probably continue up to test $102.70. Should the second key resistance be broken, the US benchmark will most likely attempt to advance to $103.74.

If the contract manages to breach the first key support at $99.24, it will probably continue to drop and test $98.20. With this second key support broken, movement to the downside will probably continue to $96.99.

Meanwhile, September Brent on the ICE will see its first resistance level at $107.63. If breached, it will probably rise and test $108.76. In case the second key resistance is broken, the European crude benchmark will probably attempt to advance to $109.65.

If Brent manages to penetrate the first key support at $105.61, it will likely continue down to test $104.72. With the second support broken, downside movement may extend to $103.59 per barrel.