Crude oil trading outlook: WTI and Brent futures headed for weekly gain, monthly loss

WTI and Brent futures were higher during early trade in Europe today, as investors priced in growing tensions in Ukraine, bumping up the risk premium. Meanwhile, upbeat economic data also supported crude, projecting brighter demand outlook in the US.

West Texas Intermediate futures for delivery in October traded at $94.76 per barrel, up 0.22%, at 6:58 GMT on the NYMEX. Prices ranged from $94.48 to a two-week high of $94.84 per barrel. The US benchmark added 0.7% yesterday and is headed for a ~1.2% weekly gain.

Meanwhile, October Brent on the ICE in London, stood for a 0.27% increase at $102.74 per barrel. Daily low and high were $102.49 and $102.82 per barrel, respectively. The contract’s premium to its US counterpart narrowed to $7.98. The European brand also added 0.7% on Thursday and is headed for a ~0.5% weekly increase.

“A pickup in economic activity in the U.S. is supporting prices,” Jonathan Barratt, the chief investment officer at Ayers Alliance Securities in Sydney, said for Bloomberg. “Geopolitical concern is just giving a little bit of a lift.”

Preliminary figures on US GDP growth for the second quarter of 2014 were posted yesterday, to log the highest reading in almost four years at 4.2% growth on an annual basis, well above expectations. Meanwhile, jobless claims were little changed from a week ago, recording 298 000 new applications. Pending home sales also clocked a better-than-expected monthly growth.

Later today figures on consumer spending will be released, analysts expecting continued growth for income, expenditures.

“If U.S. economic activity continues to improve, that suggests that youll see stronger [domestic] fuel demand,” Gene McGillian, broker and analyst at Tradition Energy in Stamford, Connecticut, said for The Wall Street Journal.

Earlier, the US Energy Information Administration (EIA) posted its weekly report on oil stocks on Wednesday. Commercial crude supplies were shown to have dropped 2.1 million barrels in the week through August 22, beating estimates of a draw of 0.9m-1.9m barrels. Meanwhile, gasoline stocks dropped 1 million barrels , while distillates, a category which includes diesel and heating oil, were up 1.3m.

A souring of relations in Europe offered some support to crude prices as well, with developments in Ukraine bumping up the risk premium.

Ukraine

Speaking at a press conference yesterday, US President Barack Obama said it is clear that Russia is responsible for the conflict in eastern Ukraine, amid more reports and data of Russian involvement.

“There is no doubt that this is not a home-grown, indigenous uprising in eastern Ukraine,” he said. “The new images of Russian forces inside Ukraine make that plain for the world to see.”

Reports of dozens of Russian armored vehicles entering Ukraine yesterday added to pressure on Russia, after several other such cases recently and the capture of 10 Russian paratroopers by Ukrainian military inside Ukraine. Meanwhile, NATO released new satellite images, showing Russian self-propelled artillery in Ukraine.

For the first time in quite a while, Russian media have questioned the actions of the Kremlin and scrutinized its ambiguous and shady stance on the reports, reminding of the similar circumstances amid which Chechnya and Afghanistan have been invaded in the past by Russia and the USSR, respectively.

Russia has repeatedly denied accusations that it supports the rebels in any way. A growing number of Russian heavy weaponry, including the system used to bring down the civilian airliner in June, and so-called “volunteers”, in addition to Russian troops reported on numerous occasions as fighting alongside the rebels and mysterious burials of Russian soldiers, who officially died on “military exercises”, raise serious questions.

Investors, however, seem to disregard the quite real possibility of a direct military confrontation between Russia and Ukraine, and all the geopolitical and economical risks that it brings, focusing instead on supply and demand figures.

“Geopolitical risk premium in oil has deflated prematurely … but geopolitical tension has not disappeared and remains an upside risk for oil prices.” BNP Paribas analysts said in a note.

Technical support and resistance levels

According to Binary Tribune’s daily analysis, West Texas Intermediate October futures’ central pivot point is at $94.24. In case the contract breaches the first resistance level at $95.02, it will probably continue up to test $95.50. Should the second key resistance be broken, the US benchmark will most likely attempt to advance to $96.28.

If the contract manages to breach the first key support at $93.76, it will probably continue to drop and test $92.98. With this second key support broken, movement to the downside will probably continue to $92.50.

Meanwhile, October Brent’s central pivot point is projected at $102.61. The contract will see its first resistance level at $103.02. If breached, it will probably rise and test $103.59. In case the second key resistance is broken, the European crude benchmark will probably attempt to advance to $103.97.

If Brent manages to penetrate the first key support at $102.07, it will likely continue down to test $101.69. With the second support broken, downside movement may extend to $101.12 per barrel.