Crude oil trading outlook: futures gain ahead of US supply data, demand worries weigh

Both West Texas Intermediate and Brent crude benchmarks marked minor daily gains before a government report may show a drop in both US crude oil and refined product inventories. Encouraging US data also provided some support but a stronger dollar, fears of slowing Chinese and European demand and rising Libyan output kept gains in check.

On the New York Mercantile Exchange, WTI crude futures for settlement in October traded at $93.37 per barrel at 7:10 GMT, up 0.53% for the day, rebounding from Tuesdays low of $92.88, which was the lowest since January 14th. Prices settled 3.2% lower from Fridays close. Trading on Monday was suspended due to the Labor Day holiday.

Meanwhile on the ICE, Brent futures for delivery in the same month were up 0.45% at $100.79 a barrel, having shifted in a daily range between $100.94 and $100.40. The European crude benchmark fell 2.38% through Tuesdays settlement to close at $100.34, the lowest since May 1st 2013. Brent was at a premium of $7.42 to its US counterpart, down from $7.46 on Tuesday.

US crude oil inventories are expected to have fallen by 1 million barrels during the week ended August 29th, the EIA will report tomorrow, according to a Bloomberg survey of analysts. Gasoline stockpiles likely declined by 1.34 million barrels to 210.9 million, while distillate fuel supplies probably slid 1.2 million to 121.6 million barrels, the survey showed.

The industry-funded American Petroleum Institute will release its separate private data at 20:30 GMT, but APIs statistics have lesser influence on the market compared to EIAs numbers. Both reports have been delayed by one day due to Mondays holiday.

Oil prices drew additional support by yesterdays upbeat US manufacturing report, with the ISM Manufacturing PMI coming in at a nearly 3-1/2-year high of 59.0 in August after construction spending rebounded in July. This sharply exceeded analysts estimates for a drop to 56.8 from Julys high of 57.1.

However, a stronger dollar weighed on oil prices, with the US dollar index hovering near the highest levels in 14-months against a basket of major trading peers. The September contract stood at 82.945 at 7:14 GMT today, having shifted in a daily range between 82.915 and 83.075, the highest since July 18th 2013.

US data

Market players now eyed the upcoming key US economic data to gauge demand prospects in the worlds top consumer. On Wednesday, Julys factory orders are projected to have risen by 11% on a monthly basis. Due out on Thursday are initial jobless claims for the week ended August 30th, expected to have risen by 2 000 to 300 000, while Automatic Data Processing will likely report that US employers added 220 000 jobs in August. The US trade deficit is expected to have widened to $42.2 billion in July from $41.54 billion a month earlier. Additionally, activity in the US services sector probably grew at a slower pace in August, with the corresponding ISM Non-Manufacturing PMI projected to register at 57.6 from 58.7 in July.

On Friday, the US Labor Department is expected to report that US employers added 225 000 people to payrolls in August, which would be the sixth straight month of job creation above 200 000, while the unemployment rate likely slid to 6.1% from 6.2% in July.

However, downbeat data from China and the Eurozone spurred bearish sentiment among market participants and pressured prices to multi-month lows.

Avtar Sandu, a senior commodities manager at Phillip Futures said for CNBC: “The weak factory data in China and Europe led to concerns over demand destruction, and thats why prices dropped. The oil market is mainly driven by the demand side now. We dont see many issues on the supply side, and at the moment investors are hardly paying any attention to all the geopolitical events going on.”

Additionally pressuring the market, output in Libya rose to 710 000 barrels per day, state-owned National Oil Corporation said, but a spokesman for the company warned its buildings are yet to be affected by clashes between rival militias. Meanwhile, Russias crude oil output rose by 1% to 10.52 million barrels per day in August, showing energy exports have not been affected by the geopolitical tensions between Russia and Ukraine and the West.

US President Barack Obama arrived in Estonia to discuss the Russia-Ukraine crisis with the presidents of Latvia, Lithuania and Estonia, a sign of Natos determination to protect its members against Russian aggression. Later in the week Obama will attend a Nato summit that is expected to agree on the deployment of a rapid-response force that could be dispatched within 48 hours.

Technical support and resistance levels

According to Binary Tribune’s daily analysis, West Texas Intermediate October futures’ central pivot point is at $93.82. In case the contract breaches the first resistance level at $94.97, it will probably continue up to test $97.05. Should the second key resistance be broken, the US benchmark will most likely attempt to advance to $98.20.

If the contract manages to breach the first key support at $91.74, it will probably continue to drop and test $90.59. With this second key support broken, movement to the downside will probably continue to $88.51.

Meanwhile, October Brent’s central pivot point is projected at $101.12. The contract will see its first resistance level at $102.08. If breached, it will probably rise and test $103.81. In case the second key resistance is broken, the European crude benchmark will probably attempt to advance to $104.77.

If Brent manages to penetrate the first key support at $99.39, it will likely continue down to test $98.43. With the second support broken, downside movement may extend to $96.70 per barrel.