Crude oil trading outlook: WTI, Brent futures drop as China growth seen slowing

WTI and Brent futures were lower during early trade in Europe today, as investors saw two separate bearish manufacturing PMI readings on China pressure oil demand outlooks. Elsewhere, the conflict in Ukraine was still in focus, after allegations that the Russian military was directly involved in fighting.

West Texas Intermediate futures for delivery in October traded at $95.64 per barrel, down 0.33%, at 7:46 GMT on the NYMEX. Prices ranged from $95.59 to $95.91 per barrel. The US benchmark added 2.4% last week.

Meanwhile, October Brent on the ICE in London, stood for a 0.27% drop at $102.91 per barrel. Daily low and high were $102.82 and $103.30 per barrel, respectively. The contract’s premium to its US counterpart widened to $7.27. The European brand added ~0.9% last week.

“We remain confident that prices have further to fall,” Thomas Pugh, commodities economist at Capital Economics, said for the Financial Times. “Of course, the situation in [Ukraine and in the Middle East] is volatile and tensions could flare up again at any time.”

Ukraine

Tensions in embattled eastern Ukraine flared up last week, after the Russian military was seen directly helping the pro-Russian rebels with manpower and hardware, pushing the Ukrainian army on the defensive.

A coastal town at the border on the Azov sea coastline, well away from the rebels positions, was captured by pro-Russian forces including many armored vehicles, presumably Russian military, opening up a new front for the fight.

Meanwhile, the Kremlin denied allegations of involvement. It should be noted that in previous wars Russian officials had denied such allegations, which turned out to be true. In March this year, Russian President Putin also dismissed accusations that Moscow had sent troops to Crimea, only to later admit it was Russian soldiers who took over the peninsula.

Russia is the worlds second-top oil exporter, and the conflict was seen as a threat to Russian shipments. Investors, however, now seem more adamant in the face of supply risk in regards of Ukraine.

“It is extremely unlikely that Russia would suspend oil shipments in the event that further sanctions were to be imposed,” Carsten Fritsch, analyst at Commerzbank, said for the Financial Times. “Instead, the already subdued oil demand could dwindle yet further.”

Demand outlooks

Two separate readings on Chinese factories were posted earlier today. Both the official government manufacturing PMI reading and HSBCs figure were logged at above 50, meaning an expansion in the sector, though both were below expectations and standing for a significant slowdown in growth.

The manufacturing sector is a leading gauge for oil consumption in China, the worlds second largest economy where the industrial sector accounts for nearly half the GDP, as produced goods need to be shipped, accounting for a significant portion of total oil consumption.

“A fair bit of weak sentiment around China has already been priced in,” Ankit Pahuja, a commodity strategist at ANZ investment bank, said for Reuters. “China has held to a 7.5 percent growth target, so the government does have plans to maintain growth across the next couple of quarters.”

Elsewhere, figures on EU manufacturing are going to be released later today, as analysts expect the significant contraction of the French sector to be pared by a sizable growth in Germany, for an overall little change Bloc-wide. The US will see a key manufacturing PMI reading tomorrow, looking to log another month of massive growth.

Technical support and resistance levels

According to Binary Tribune’s daily analysis, West Texas Intermediate October futures’ central pivot point is at $95.48. In case the contract breaches the first resistance level at $96.48, it will probably continue up to test $97.00. Should the second key resistance be broken, the US benchmark will most likely attempt to advance to $98.00.

If the contract manages to breach the first key support at $94.96, it will probably continue to drop and test $93.96. With this second key support broken, movement to the downside will probably continue to $93.44.

Meanwhile, October Brent’s central pivot point is projected at $102.99. The contract will see its first resistance level at $103.50. If breached, it will probably rise and test $103.80. In case the second key resistance is broken, the European crude benchmark will probably attempt to advance to $104.31.

If Brent manages to penetrate the first key support at $102.69, it will likely continue down to test $102.18. With the second support broken, downside movement may extend to $101.88 per barrel.