Crude oil trading outlook: WTI and Brent futures lower as China gauges weigh

WTI and Brent futures were lower during early trade in Europe today, as investors disregarded risks over Russian supplies in light of the Ukraine crisis. Bearish figures from China and the Eurozone weighed on oil demand outlooks, pressuring crude.

West Texas Intermediate futures for delivery in October traded at $95.72 per barrel, down 0.25%, at 7:42 GMT on the NYMEX. Prices ranged from $95.52 to $95.91 per barrel. The US benchmark added 2.4% last week, Monday being closed for US Labor Day holiday.

Meanwhile, October Brent on the ICE in London, stood for a 0.21% drop at $102.57 per barrel. Daily low and high were $102.47 and $102.86 per barrel, respectively. The contract’s premium to its US counterpart narrowed to $6.85. The European brand dropped 0.4% on Monday after adding ~0.9% last week.

“There is no real direction in the market until heating oil demand kicks in closer to winter,” Ken Hasegawa, a commodity sales manager at Newedge Japan, said for Reuters. “We think the decline in oil prices has stopped … but upside is also limited at the moment.”

Ongoing conflicts involving key oil players failed to lift prices on Monday, as investors dismiss risks of supply disruptions.

Ukraine

The conflict in Ukraine saw hopes of a peaceful resolution dashed on Monday, after rare peace talks between rebels and authorities broke down without any agreement.

The meeting in Minsk, Belarus, failed to produce any result, though the rebels were seen as softening their demands, backing off from a complete independence claim and now seeking self-rule within a federative Ukraine. The level of autonomy, however, was seen as excessive by Kiev, as separatists demand to have complete security, judicial and economic control, including deepening of economic ties with Russia.

Meanwhile, government forces continued losing ground on Monday, as Kiev said Russia is now waging a “great war” with Ukraine.

Moscow has been widely accused of supplying rebels with hardware and personnel, as well as expertise. NATO has presented many satellite images showing Russian military vehicles moving in Ukraine, and Russian military servicemen have been captured in Ukraine on more than one occasion.

The Kremlin denies all accusations. It should be noted that 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 world’s 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 yesterday. Both the official government manufacturing PMI reading and HSBC’s 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 world’s 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.

Elsewhere, the Eurozone posted downbeat manufacturing readings on Monday, though the Bloc-wide figure was still above 50, meaning an expansion in the sector.

“There are slowdowns occurring,” Jonathan Barratt, the chief investment officer at Ayers Alliance Securities in Sydney, said for Bloomberg. “OPEC is producing enough oil to placate any issues, or potential issue that may arise.”

The US will see a key manufacturing PMI reading tomorrow, looking to log another month of massive growth.

“The ample supply situation is precluding any significant rise in prices,” analysts at Commerzbank said, cited by The Wall Street Journal.

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 $102.88. The contract will see its first resistance level at $103.21. If breached, it will probably rise and test $103.62. In case the second key resistance is broken, the European crude benchmark will probably attempt to advance to $103.95.

If Brent manages to penetrate the first key support at $102.47, it will likely continue down to test $102.14. With the second support broken, downside movement may extend to $101.73 per barrel.