Crude oil futures weekly recap, September 1 – September 5

Both West Texas Intermediate and Brent crude benchmarks fell on Friday and settled the week lower after Ukraine and pro-Russian separatists signed a preliminary ceasefire protocol, while slower-than-projected US jobs growth in August spurred some demand concerns.

On the New York Mercantile Exchange, WTI crude for delivery in October fell by 1.23% on Friday to settle the week 2.7% lower at $93.29 a barrel. Prices are down 5.2% this year.

Meanwhile on the ICE, Brent futures for settlement in the same month lost 0.99% on Friday to close at $100.82 a barrel, registering a 2.3% weekly loss. Brent’s premium to its US counterpart widened to $7.53 from Thursday’s settlement at $7.38.

Oil prices were pressured on Friday after the US Department of Labor unexpectedly reported that the pace of job creation in August fell to the lowest since January, reflecting a pause in the labor market’s recent momentum. Analysts had projected a jump to between 225 000 and 230 000 from July’s upward-revised 212 000 jobs added.

Meanwhile, the US unemployment rate matched expectations and slid back to a 6-year low of 6.1%, the same as in June, after jumping back to 6.2% in July. The drop reflected a decline in unemployment among teenagers.

John Kilduff, a partner at Again Capital LLC, said for Bloomberg on Friday: “There’s a lot of skepticism about today’s numbers and the market may shrug it off. The weekly jobs numbers, the ISM and a slew of other positive data has pointed to robust U.S. economic growth. There’s a sense that these numbers may be revised higher.”

Data earlier in the week showed that the US manufacturing sector expanded at the fastest pace in almost 3-1/2 years in August, with the ISM Manufacturing PMI coming in at 59.0 which sharply exceeded analysts’ estimates for a drop to 56.8 from July’s high of 57.1.

Meanwhile, the US services sector expanded at the fastest pace in nine years in August, with the Institute for Supply Management’s non-manufacturing index surging to 59.6 last month, defying analysts’ projections for a drop to 57.5 from 58.7 in July.

A strong dollar also dragged on prices. The greenback surged to a 14-month high against a basket of major trading peers, supported by the upbeat US industry data and ECBs decision to lower its benchmark interest rate to a record low and to announce two bond-purchasing programs which would total in excess of €1tn.

The US dollar index for settlement in September fell by 0.09% to 83.757 on Friday, settling the week over 1% higher. The US currency gauge surged to 83.965 on Thursday, the strongest level since July 10th. A stronger dollar makes dollar-denominated commodities more expensive for holders of foreign currencies and limits their appeal as an alternative investment.

US inventories

Prices drew some 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 nation’s 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.

Geopolitics

Easing tensions in Ukraine also pushed prices down. The Ukrainian government and pro-Russian rebels who met in Minsk on Friday signed a preliminary agreement to start a ceasefire and a 12-point roadmap, Ukrainian President Petro Poroshenko said.

Peace talks between rebels and Kiev began after Mr. Poroshenko and his Russian counterpart Vladimir Putin had agreed to have the peace process initiated.

However, a new round of shelling was reported on Sunday near the Donetsk airport in eastern Ukraine, spurring fears that the truce might be short-lived. The ceasefire was honored on Saturday but shelling in Mariupol overnight was followed by fighting near the Donetsk airport early Sunday.

Meanwhile, European diplomats approved the Unions broadest measure of sanctions against Russia on Friday, underscoring skepticism that the truce will hold. Hours after the Ukraine-rebels accord was signed, EU ambassadors sketched the blocs second package of economic sanctions, which bar Russian state-owned energy and defense companies from raising capital in the EU. The new penalties are pending EU national governments approval, which should be granted on September 8th.

Persisting tensions in Iraq have kept a floor under prices. The US was reported to be carrying out air strikes on Islamic State insurgents near the Haditha dam in western Iraq to protect Iraqi forces and Sunni tribesmen who are in control of the dam. Earlier, Kurdish forces retook the strategically important Mount Zarta.

Technical levels

According to Binary Tribune’s daily analysis for Monday, West Texas Intermediate October futures’ central pivot point is at $93.71. In case the contract breaches the first resistance level at $94.57, it will probably continue up to test $95.84. Should the second key resistance be broken, the US benchmark will most likely attempt to advance to $96.70.

If the contract manages to breach the first key support at $92.44, it will probably continue to drop and test $91.58. With this second key support broken, movement to the downside will probably continue to $90.31.

Meanwhile, October Brent’s central pivot point is projected at $101.20. The contract will see its first resistance level at $102.06. If breached, it will probably rise and test $103.29. In case the second key resistance is broken, the European crude benchmark will probably attempt to advance to $104.15.

If Brent manages to penetrate the first key support at $99.97, it will likely continue down to test $99.11. With the second support broken, downside movement may extend to $97.88 per barrel.