Crude oil trading outlook: WTI and Brent futures calm ahead of key data

WTI and Brent futures were steady during early trade in Europe today, as investors eye key economic and supply data. Brents premium to WTI shrank to the lowest in more than a year, outlining the discrepancy between supply-demand fundamentals in the US and globally.

WTI futures for November delivery on the New York Mercantile Exchange traded at $94.55 per barrel at 7:17 GMT today, down 0.02% for the day. Prices had ranged from $94.18 to $94.86 per barrel. The US benchmark added 1.1% on Monday, after a further ~1.4% gain last week.

Meanwhile on the ICE in London, November Brent stood at $97.18 per barrel, down 0.02%, with prices between $96.98 and $97.41 per barrel. The contract’s premium to its US counterpart narrowed to $2.63, the lowest in a year, with the global benchmark adding just 0.2% yesterday.

HSBC and Markit reported their reading on the key manufacturing sector in China earlier today. The groups manufacturing PMI was logged at 50.2, slightly below expectations, but still standing above the key “50.0” mark, indicating the sector has expanded. The factory sector is a leading oil demand gauge, as manufactured goods need transportation and factories themselves require a significant amount of fuel or power. In China especially, the factory sector is a massive part of the economy, accounting for more than 40% of GDP, while China itself accounts for about 12% of global crude demand.

Investors now eye data from the US, the worlds top oil consumer with a 21% share of global crude demand, and the Eurozone, where 11% of all crude goes. The Conference Boards US consumer confidence index is expected to log a minor increase at 92.5, the highest in at least six years. Meanwhile, key unemployment and CPI figures are awaited from the Eurozone. The unemployment rate is forecast to be unchanged at 11.5%, while consumer inflation is projected to further drop to 0.3% on an annual basis, the lowest level almost five years.

Upbeat data from the US and weak figures from the Eurozone both boost the US dollar, which in turn weighs on dollar-denominated commodities, such as crude oil. The greenback reached a four-year high against a complex of other major currencies yesterday, extending the upward trend and pressuring commodities across.

Meanwhile, a set of more direct oil demand gauges is keenly awaited. The industry-funded American Petroleum Institute (API) is set to release its weekly readings on US oil inventories later today, ahead of the official Energy Information Administration (EIA) report tomorrow.

A Bloomberg survey suggests crude stocks in the US added 1.5 million barrels in the week through September 26th, while gasoline dropped 0.6m and distillates were unchanged. Crude production reached a 28-year high last week.

Middle East, OPEC

Continued air strikes in Syria failed to widen the risk premium, as investors now shrug off the possibility of the situation complicating and potentially escalating. Meanwhile, output in Iraq, OPECs second-top exporter, and Libya firmly kept to recent gains, adding supply pressure to an already oversupplied market.

Previously, OPEC and the International Energy Agency both lowered crude demand growth outlooks for 2015, while also noting ample supplies. OPEC also lowered its own marketable crude projection.

Investors are still closely looking at OPEC for cues on a potential production curb, as most OPEC members look to the $100 per barrel level as the lowest to meet budgetary expenses. The biggest member and de facto leader of OPEC, Saudi Arabia, however, has moved to dissuade markets of an imminent cut in output, as it seeks to keep a dominant market share.

Morgan Stanley, however, issued a note on Monday saying OPEC “will likely need to reduce production further before oil markets are balanced.”

Technical support and resistance levels

According to Binary Tribune’s daily analysis for Monday, West Texas Intermediate November futures’ central pivot point is at $93.98. In case the contract breaches the first resistance level at $95.23, it will probably continue up to test $95.88. Should the second key resistance be broken, the US benchmark will most likely attempt to advance to $97.13.

If the contract manages to breach the first key support at $93.33, it will probably continue to drop and test $92.08. With this second key support broken, movement to the downside will probably continue to $91.43.

Meanwhile, November Brent’s central pivot point is projected at $96.94. The contract will see its first resistance level at $97.60. If breached, it will probably rise and test $98.01. In case the second key resistance is broken, the European crude benchmark will probably attempt to advance to $98.67.

If Brent manages to penetrate the first key support at $96.53, it will likely continue down to test $95.87. With the second support broken, downside movement may extend to $95.46 per barrel.

Do you think the market is underestimating the risk of a deeper crisis in the Middle East?

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