Crude oil futures weekly recap, July 28 – August 1

Both West Texas Intermediate and Brent crude benchmarks fell on Friday to the lowest settlement prices in months as global supply outstripping demand offset geopolitical tension in Africa, Ukraine and the Middle East which failed to spur fears of major supply disruptions. Softening demand in the US, coupled with mixed economic data, also added to the bearish sentiment.

On the New York Mercantile Exchange, WTI crude for delivery in September fell by 0.30% to $97.88 per barrel on Friday, the lowest close since February 6th. Prices ranged in a daily span between $98.10 and $97.09. The US crude benchmark fell throughout the entire week, posting a 4.2% weekly decline, the largest since the week ended January 3rd.

Meanwhile on the ICE, Brent futures for settlement in the same month shed 1.11% to settle the session at $104.84, the lowest close since April 2nd. Prices shifted between $106.12 and $104.39 on Friday a barrel and were down 3.3% on weekly basis. Brents premium to its US counterpart narrowed to $6.96 from $7.85 on Thursday, which was the highest since June 24th.

Oil prices remained pressured to the downside after government data showed on Wednesday that US motor gasoline stockpiles rose to a four-month high, despite being in the middle of the peak US driving season. Additionally, a Reuters survey had shown earlier in the week that OPEC pumped more oil in July compared to June, in spite of the turmoil in Iraq and Libya. Iraq’s output remained near record-high levels.

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, while Supplies at Cushing, Oklahoma dropped to 17.9 million barrels, the lowest since October 2008, down from 18.8 million a week earlier.

US crude demand may be additionally pressured by a prolonged shutdown of a Coffeyville, Kansas-based refinery which caught fire on July 29th. The 115 000-barrel-per-day refinery, which feeds crude from Cushing, Oklahoma, may see an extended maintenance of up to four weeks.

Global manufacturing

Providing some support, China’s vast manufacturing sector expanded at the fastest pace in more than two years in July. Government data provided by the National Bureau of Statistics showed China’s Manufacturing PMI edging up to 51.7, beating estimates for a jump to 51.4 from June’s 51.0.

The reading matched estimates by HSBC and Markit Economics, whose private gauge, at 51.7, was the highest in 18 months, in spite of trailing expectations for a jump to 52.0 from June’s final reading of 50.7.

The private report highlighted that output and total new orders both rose at the strongest rates since March 2013, while new export work increased at the second-fastest pace in over 3-1/2 years. As a result, purchasing activity rose solidly while job shedding eased for the second successive month and was only slight.

Additionally, Markit Economics reported that manufacturing activity in France further contracted July, with the Markit Manufacturing PMI scoring at 47.8, down from 48.2 in June but beating projections for a further drop to 47.6.

Germany’s manufacturing sector posted a smaller growth from what preliminary estimates showed, with the German Manufacturing PMI registering at 52.4 in July, trailing the flash reading’s 52.9. However, this was an improvement compared to June’s final reading of 52.0.

The Eurozone as a whole saw manufacturing activity growth unchanged at 51.8 in July, slightly below preliminary estimates of 51.9 released earlier in the month. This was the 13th straight month of expansion.

Britain’s manufacturing sector also marked an improvement, but it grew at the slowest pace since March 2013. The British manufacturing PMI scored at 55.4, compared to expectations to remain flat at 57.2.

US economic recovery

Oil prices hardly moved as data by the US Labor Department showed that US nonfarm payrolls increased by 209 000 in July, underperforming projections for 233 000, while June’s reading received an upward revision to 298 000 from initially estimated at 288 000. The US unemployment rate inched up to 6.2%, up from 6.1% in June. Both personal income and spending matched projections and rose by 0.4% from a month earlier.

The Reuters/Michigan Consumer Sentiment survey showed a decline in consumer confidence in July, with its index dropping to 81.8, underperforming expectations for a decline to 82.0 from Junes reading of 82.5.

However, the Institute for Supply Management reported that the US manufacturing activity expanded at a faster pace than expected, hitting a multi-year high. The ISM manufacturing PMI surged to 57.1 in July from 55.3 a month earlier, beating projections for a jump to 56.0. Orders and production expanded last month at the fastest pace of the year, ensuring high employment, with the manufacturing employment index jumping to 58.2, the highest since June 2011, up from 52.8 a month earlier. Analysts had expected a minor increase to 53.0.

Geopolitical tension in several key regions of interest for the oil markets provided some support, but only to a limited extent. Libya’s oil disruptions are already priced in, while civil unrest in northern and western Iraq have failed to affect crude output in the south. Market players eyed President Vladimir Putin’s response to the latest wave of economic sanctions by the US and EU against Russia, including an expansion of the blacklist of individuals with close ties to Putin who allegedly play a vital role in the fueling of civil unrest in Ukraine.

Technical view

According to Binary Tribune’s daily analysis fro Monday, in case West Texas Intermediate September futures breach the first resistance level at $98.29, they will probably continue up to test $98.70. Should the second key resistance be broken, the US benchmark will most likely attempt to advance to $99.30.

If the contract manages to breach the first key support at $97.28, it will probably continue to drop and test $96.68. With this second key support broken, movement to the downside will probably continue to $96.27.

Meanwhile, September Brent on the ICE will see its first resistance level at $105.84. If breached, it will probably rise and test $106.85. In case the second key resistance is broken, the European crude benchmark will probably attempt to advance to $107.57.

If Brent manages to penetrate the first key support at $104.11, it will likely continue down to test $103.39. With the second support broken, downside movement may extend to $102.38 per barrel.