Crude oil futures trading outlook: WTI and Brent little changed ahead of US employment data

Both West Texas Intermediate and Brent crude benchmarks were little changed after logging ~1% losses on Thursday ahead of a government report which may show the US economy added more than 200 000 jobs for the sixth consecutive month in August. Overall bullish supply data by the EIA on Thursday underpinned the market but a firmer dollar weighed.

On the New York Mercantile Exchange, WTI crude for delivery in October was up 0.25% at 6:46 GMT to trade at $94.69 a barrel, having shifted in a daily range between $94.75 and $94.32 a barrel. The contract settled 1.14% lower on Thursday at $94.45 a barrel. Prices are down ~1.2% this week.

Meanwhile on the ICE, Brent futures for settlement in the same month added 0.14% to $101.97 a barrel, holding in a daily range of $102.06-$101.71. The European crude benchmark fell 0.91% on Thursday to $101.83. Brents premium to its US counterpart narrowed to $7.28 from yesterdays settlement at $7.38.

Both crude benchmarks were pressured down by a firmer dollar, which rose to the highest in 14 months against the euro after the ECB cut its benchmark interest rate to 0.05%, the lowest on record, and Mario Draghi committed to buying so-called asset-backed securities and covered bonds to inject cash in the Eurozones stalling economy.

The US dollar index, which measures the greenbacks strength against a basket of six major currencies, surged to the highest in almost 14 months. The September contract stood at 83.835 at 6:46 GMT, mostly unchanged for the day, having hit a session high of 83.965, the strongest level since July 10th. It added 1.14% on Thursday to settle at 83.834. A stronger dollar makes commodities priced in it more expensive for foreign currency holders and limits their appeal as an alternative investment.

US inventories

Prices drew support after the Energy Information administration reported a larger-than-projected drop in US gasoline stockpiles on Thursday. Inventories slid 2.32 million barrels to 209.99 million in the seven days through August 29th, surpassing projections for a 1.4-million drop. Distillate fuel supplies, which include diesel and heating oil, rose by 605 000 barrels to 123.4 million, defying expectations for a decline of 1 million barrels.

Commercial crude oil inventories logged a 905 000-barrel drop, largely in line with projections for a 1-million-barrel fall, while supplies at the nations biggest hub at Cushing, Oklahoma, slid by 385 000 barrels to 20.3 million.

Refineries operated at 93.3% of their operable capacity, down 0.2% from a week earlier, with refineries entering their maintenance season to switch to producing winter-grade fuels. Gasoline production rose to ~9.6m barrels per day, while distillate fuel output was little changed at ~5.1m barrels a day.

Domestic crude production was little changed at 8.6 million barrels per day, more than 1 million above year-ago levels. Meanwhile, net imports of crude stood at 7.2 million bpd, 1 million down from year-ago levels.

US data

Market players eagerly awaited todays jobs report by the Labor Department to gauge demand prospects in the worlds biggest consumer and see whether the greenback is poised for more upside. The government agency 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.

Yesterday, the Labor Department said that the number of people who filed for initial unemployment benefits during the week ended August 29th rose to 302 000 from 298 000 in the preceding period. Meanwhile, Automatic Data Processing reported that US employers added 204 000 jobs in August, defying expectations for a jump to 220 000 from a downward-revised 212 000 a month earlier.

Supplies

Also fanning negative sentiment, Libyas nationwide crude production remained steady at 725 000 barrels per day, state-owned National Oil Corporation said.

Meanwhile, output at North Seas Buzzard oilfield has restarted and will accelerate over the next week, its operator said yesterday, bringing back online one of the key oilfields which underpin the Brent crude oil benchmark.

Some support was provided by a drop in output from Iraqs Kirkuk to 30 000 bpd since June, a mere 10% from its 300 000-bpd capacity, as Islamic State fighters seized territories and attacked oil infrastructure.

Geopolitics

Easing tensions in Ukraine also helped keep prices lower. Events in Ukraine are as close to unfolding as ever today, as a number of events could shape the conflict and the long-term geopolitical outlook in Europe.

Foremost, peace talks between rebels and Kiev are set to begin today, after Ukrainian President Petro Poroshenko and his Russian counterpart Vladimir Putin agreed to have the peace process initiated.

The talks come after rebels directly assisted by Russian military, according to NATO, made significant advances against government troops recently. The EU could also announce further sanctions against Russia today.

Meanwhile, NATO holds its summit in Wales, with security in Eastern Europe and response to Russian aggression high on the agenda. Ukraine lawmakers yesterday approved of the countrys decision to bid for NATO membership, souring relations with the Kremlin just ahead of the scheduled peace talks with the rebels.

Technical levels

According to Binary Tribune’s daily analysis, West Texas Intermediate October futures’ central pivot point is at $94.67. In case the contract breaches the first resistance level at $95.17, it will probably continue up to test $95.90. Should the second key resistance be broken, the US benchmark will most likely attempt to advance to $96.40.

If the contract manages to breach the first key support at $93.94, it will probably continue to drop and test $93.44. With this second key support broken, movement to the downside will probably continue to $92.71.

Meanwhile, October Brent’s central pivot point is projected at $102.16. The contract will see its first resistance level at $102.620. If breached, it will probably rise and test $103.41. In case the second key resistance is broken, the European crude benchmark will probably attempt to advance to $103.87.

If Brent manages to penetrate the first key support at $101.37, it will likely continue down to test $100.91. With the second support broken, downside movement may extend to $100.12 per barrel.