Crude oil futures trading outlook: WTI and Brent reverse gains as US fuel supplies rise

Both West Texas Intermediate and Brent crude benchmarks fell on Thursday after posting sharp gains in the previous session as industry data showed an unexpected rise in US fuel stockpiles, while crude inventories fell less than projected. A strong dollar and Ukraine peace hopes further pressured prices. Investors eyed the upcoming EIA supplies report, as well as the Labor Departments jobs report to gauge demand prospects.

On the New York Mercantile Exchange, WTI for settlement in October was down 0.76% to $94.81 per barrel at 6:57 GMT, having shifted in a daily range between $95.28 and $94.80. The US crude benchmark fell to a 1-1/2-week low of $92.68 on Tuesday, before surging 2.86% on Wednesday to settle at $95.54, the sharpest gain since August 2013.

Meanwhile on the ICE, Brent futures for delivery in the same month traded at $102.05 a barrel, down 0.70% on the day. Prices ranged between $102.46 and $101.96. The contract plunged to a 16-month low of $100.17 on Tuesday but rebounded 2.4% on Wednesday to settle at $102.77. Brents premium to its US counterpart was mostly unchanged at $7.24 compared to yesterdays close at $7.23.

Oil prices slipped into negative territory after industry data provided by the American Petroleum Institute showed that US motor gasoline stockpiles rose by 362 000 barrels in the seven days through August 29th, while distillate fuel inventories added 385 000 barrels. Both categories were projected to have dropped. Crude oil inventories fell by 545 000 barrels.

APIs data however is less influential compared to EIAs government report. According to a Bloomberg survey of analysts, the Energy Information Administration is likely to report that crude oil inventories slid by 1 million barrels last week, while motor gasoline stockpiles declined by 1.4 million. Distillate supplies probably fell by 1.2 million barrels, the survey showed.

US data, dollar strength

Fanning some bullish sentiment, data by the Census Bureau showed yesterday that US factory orders surged by a record 10.5% in July to reach the highest level in 8-1/2 years. This compared to a 1.5% gain in June and a 0.6% contraction in May.

Tuesday’s upbeat US manufacturing report also provided support, 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 July’s high of 57.1.

A stronger dollar, however, dragged on prices, with the greenback hovering near the highest levels in 14 months. The US dollar index for settlement in September stood at 82.950 at 6:58 GMT, up 0.07% on the day. The US currency gauge surged to 83.075 on Wednesday, the highest since July 18th 2013, but settled the day 0.15% lower at 82.888. A stronger dollar makes dollar-denominated commodities more expensive for holders of foreign currencies and limits their appeal as an alternative investment.

Market players eyed the upcoming key US economic data to gauge demand prospects in the world’s top consumer. 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, further supporting the possibility of an interest rate hike.

Geopolitics

Easing geopilitcal tensions eroded oils risk premium. Russian President Vladimir Putin said yesterday he is hoping for a peace accord to be reached between Ukraine and pro-Russian separatists on Friday when they resume talks in Minsk. He urged both counterparts to cease military action in eastern Ukraine and proposed a seven-point peace plan, which includes pulling back troops, halting active offensive operations, full prisoner exchange, international monitoring of the process, opening a humanitarian corridor for refugees and aid delivery, restoration of destroyed infrastructure and prohibiting the use of military jets against civilians.

Ukrainian President Petro Poroshenko said he had agreed a ceasefire process with his Russian colleague. In a statement Mr. Poroshenko’s office said that their conversation resulted in an agreement on a process for ceasing fire in the Donbass region and that the two presidents reached a mutual understanding on steps leading to peace.

Natos biennial summit begins today in Newport, Wales, where more than 60 heads of state and government will be engaged primarily with Ukraine, Afghanistan and the future of the Nato alliance. A meeting between the British and Italian prime ministers, German chancellor, French and US presidents, and Ukrainian President Petro Poroshenko will be held before the summit officially starts today.

Libyas crude oil output has recovered to 725 000 barrels per day, despite ongoing clashes between armed militia groups. The group that controls the nations biggest oil port vowed to work with the government and sustain the nations crude exports and pledged to protect its oil fields against attacks by Islamist militias who took control over Tripoli.

Russia’s 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.

Technical support and resistance

According to Binary Tribune’s daily analysis, West Texas Intermediate October futures’ central pivot point is at $94.81. In case the contract breaches the first resistance level at $96.56, it will probably continue up to test $97.58. Should the second key resistance be broken, the US benchmark will most likely attempt to advance to $99.33.

If the contract manages to breach the first key support at $93.79, it will probably continue to drop and test $92.04. With this second key support broken, movement to the downside will probably continue to $91.02.

Meanwhile, October Brent’s central pivot point is projected at $102.10. The contract will see its first resistance level at $103.80. If breached, it will probably rise and test $104.83. In case the second key resistance is broken, the European crude benchmark will probably attempt to advance to $106.53.

If Brent manages to penetrate the first key support at $101.07, it will likely continue down to test $99.37. With the second support broken, downside movement may extend to $98.34 per barrel.