Crude oil trading outlook: futures set for weekly loss on abundant supplies, strong dollar

Both West Texas Intermediate and Brent crude benchmarks were little changed on Friday and headed for a weekly loss as ample global supplies and a stronger dollar pressured the market, while geopolitical risks eased. Slowing manufacturing activity growth in China and Europe also helped push prices lower.

On the New York Mercantile Exchange, WTI crude for settlement in October stood at $93.92 per barrel at 7:02 GMT, down 0.04% on the day, having traded in a narrow daily range between $94.04 and $93.73 a barrel. The US crude benchmark rose for a second day on Thursday, having added 0.55% to settle at $93.96. Prices are down 1.4% so far this week.

Meanwhile on the ICE, Brent for delivery in the same month was down 0.03% at $102.60 a barrel, having shifted between $102.72 and $102.43 a barrel. The contract rose 0.34% on Thursday to $102.63. Prices are down around 1% so far this week. Brents premium to its US counterpart widened to $8.80 from Thursdays close of $8.67.

Oil prices were under pressure after a preliminary gauge showed Chinese factory growth eased to a three-month low in August, fueling fears of softening demand in the worlds second-top consumer. The Flash China Manufacturing PMI registered at 50.3 in August from July’s final reading of 51.7. At the same time, the Flash China Manufacturing Output Index slid to 51.3 from 52.8 in July, also a three-month low.

Output, new orders and new export orders increased, but at a slower rate, while employment in the sector decreased at a faster rate. China is the world’s second biggest oil consumer and will account for 11% of global demand this year.

In Europe, France’s manufacturing sector contracted at a faster pace, data by Markit showed, with France’s preliminary manufacturing PMI sliding to 46.5 in August from 47.8 in July. If confirmed, this would be the lowest since May 2013. Analysts had expected a flat reading. Values below the threshold of 50 indicate a contraction in the sector.

Germany’s manufacturing sector, however, outperformed economists’ projections, with the flash German manufacturing PMI registering at 52.0, compared to 52.4 in July, but beating predictions for a drop to 51.8. If confirmed, this would be the 14th straight month of expansion.

In the Eurozone as a whole, manufacturing activity growth fell to the lowest since July 2013. The flash manufacturing PMi slid to 50.8, trailing projections for a moderate drop to 51.3 from 51.8 in July.

Providing some support on the demand side, US jobless claims for the week ended August 16th fell by 14 000 to 298 000, the Labor Department reported, beating projections for a drop to 300 000 from the previous period’s upward revised 312 000.

Meanwhile, manufacturing activity in the Philadelphia region expanded at the fastest pace in more than 3-1/2-years with the Philadelphia Fed Manufacturing Index rising to 28.0 in July from 23.9 in June. Analysts had projected a drop to 19.2.

US inventories

Wednesday’s mixed US inventories data also failed to lift the oil market. The Energy Information Administration reported that total motor gasoline inventories rose for the first time in three weeks, having added 0.6 million barrels in the week through August 15th to 213.3 million, defying analysts’ expectations for a 1.4-million drop. Distillate fuel stockpiles, which include diesel and heating oil, fell by 1.0 million barrels to 121.5 million, compared to a projected 0.3-million decline.

US crude oil inventories fell by 4.5 million barrels last week to 362.5 million, beating analysts’ forecasts for a 1.75-million drop. Supplies at Cushing, Oklahoma, the biggest US storage hub and delivery point for NYMEX-traded contracts, rose to 20.2 million barrels from 18.4 a week earlier. Domestic crude production jumped to 8.577 million barrels of crude oil per day, up from 8.556 million last week and more than 1 million above year-ago levels.

Additionally, the American Petroleum Institute said in its monthly report on Thursday that US crude production surged to the highest in 28 years in July.

Further pressuring prices on the supply side, OPEC raised its crude output in July, despite geopolitical tension in some of its member countries. Iraqs output remained near record high levels as the countrys southern parts, which account for most of nationwide production, were unaffected by clashes with Islamic State in the north. Saudi Arabia, the Organizations top producer, had its output raised to 10 million barrels per day in July.

Meanwile, Libyan crude production also rose as the country managed to reopen its biggest export terminal Es Sider, among others, and loaded a second tanker. Albeit still below its 1.4-million-bpd levels from a year earlier, Libyas output is gradually rising, having reached 612 000 bpd.

A stronger dollar also weighed on oil as a strengthening greenback makes commodities priced in it more expensive for foreign currency holders and limits their appeal as an alternative investment. The September US dollar index contract stood at 82.155 at 7:02 GMT, down 0.06% on the day. The US currency gauge ranged between 82.255 and 82.125, close to Thursdays 13-month high of 82.420.

Market players awaited Fed Chairwoman Janet Yellens speech at 14:00 GMT at the central bankers meeting in Jackson Hole, Wyoming, looking for any signals on the timing of a U.S. interest rate hike.

Technical view

According to Binary Tribune’s daily analysis, West Texas Intermediate October futures’ central pivot point is at $93.64. In case the contract breaches the first resistance level at $94.77, it will probably continue up to test $95.59. Should the second key resistance be broken, the US benchmark will most likely attempt to advance to $96.72.

If the contract manages to breach the first key support at $92.82, it will probably continue to drop and test $91.69. With this second key support broken, movement to the downside will probably continue to $90.87.

Meanwhile, October Brent’s central pivot point is projected at $102.21. The contract will see its first resistance level at $103.21. If breached, it will probably rise and test $103.79. In case the second key resistance is broken, the European crude benchmark will probably attempt to advance to $104.79.

If Brent manages to penetrate the first key support at $101.63, it will likely continue down to test $100.63. With the second support broken, downside movement may extend to $100.05 per barrel.