Crude oil trading outlook: WTI and Brent futures trade above four-month lows

WTI and Brent futures were slightly higher and climbing during early trade in Europe today. Both crude benchmarks slumped last week, as traders wrote off some of the risk premium, and the US economy posted mixed data.

WTI futures for September delivery stood at $98.12 per barrel at 7:14 GMT in New York today, up 0.25%. Daily prices ranged from $97.62 to $98.21 per barrel. Last week the US brand lost 4.2%, the largest weekly decline in seven months, pushing the September contract to a three-month low of $97.09 per barrel.

September Brent on the ICE in London had added 0.32% to trade at $105.18 per barrel. Daily low and high were at $104.64 and $105.24 per barrel, respectively. The Brent contracts premium to its US counterpart was $7.06, after last weeks closing margin of $6.96. Brent dropped some 3.3% last week, with the September future reaching a four-month low of $104.39 per barrel.

Concerns about Iraqs output, the second largest in the Organization of the Petroleum Exporting Countries (OPEC), have all but vanished, as the countrys main southern oilfields remain safe, while the big northern fields are also kept secure by the autonomous Kurdish state.

Fears over the conflict in Libya are already priced, as output is already at very low levels, the lowest in the OPEC, and things could hardly get any worse, traders say, shifting the focus towards economic figures and the demand side.

“There is no fear about supply,” Ken Hasegawa, energy trading manager at Newedge Group in Tokyo, said for Bloomberg. “On technical charts, we saw big drops last week, and both WTI and Brent are down to one of the support levels. WTI is very close to $97.50 a barrel and Brent to $104 a barrel. If those levels hold, the market will rebound.”

US Economy

The Institute of Supply Management will post its read services PMI reading for July tomorrow, after logging a significantly quicker expansion of US factory activity in July last week. The Institutes figure is forecast at 56.5, standing for an accelerating growth for the services sector, which accounts for 80% of US GDP. ISMs report will come shortly before the release of US factory orders log for June, which is expected to reveal slight monthly growth at 0.6%.

Last week, policymakers decided to keep the benchmark interest rate unchanged at 0.25%, saying that they still see weakness in the labor market, and that a hike was not to happen for a “considerable time after the asset-purchasing program had concluded”. The Fed kept on track with the cuts to purchases volumes, decreasing them to $25 billion, leading to a close of the program in late 2014.

Jobless claims and payrolls reports, which were released after the meeting, confirmed the Fed’s concern, as weekly jobless claims were significantly higher than expected, while payrolls thoroughly disappointed, adding just 209 000.

Meanwhile, consumer confidence grew, according to the Conference Board, reaching a seven-year peak, while the Bureau of Economic Analysis posted a 4.0% quarterly GDP growth, stoking further confidence for the US.

The US is the worlds leading oil consumer, accounting for about 21% of total demand.

China

The Chinese government reported services PMI reading of 54.2 for July on Sunday, ahead of HSBCs reading, due on Tuesday.

China’s manufacturing activity expanded at the fastest pace in more than two years in July, a report revealed last week. The reading matched estimates by HSBC and Markit Economics, whose private gauge was the highest in 18 months, in spite of trailing expectations.

The services and industrial sectors each account for about half of the Chinese economy, which consumes about 13% of all oil.

Technical view

According to Binary Tribune’s daily analysis, 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.