Crude oil futures trading outlook: WTI and Brent decline ahead of US data, Gaza ceasefire

Both West Texas Intermediate and Brent crude benchmarks fell on Monday as a 24-hour humanitarian truce in Gaza shed some of the risk premium, although movements to the downside were limited as clashes in Libya resulted in the death of more than 30 people. Market players awaited the release of key US economic data throughout the week, including the outcome of FOMCs two-day policy meeting which starts tomorrow.

On the New York Mercantile Exchange, WTI crude for delivery in September fell by 0.10% to $101.99 per barrel at 7:04 GMT, having shifted in a daily range between $101.50 and $102.10 a barrel. This is the contracts fourth day of declines out of five. The US benchmark added 0.02%, or 2 cents, on Friday.

Meanwhile on the ICE, Brent futures for settlement in the same month dropped 0.30% to trade at 108.06 per barrel. Prices held in a daily range between $108.38 and $107.79 a barrel. The European crude benchmark added 1.23% on Friday and closed the week 1% higher at $108.39. Brent traded at premium of $6.07 to its US counterpart, down from $6.30 on July 25th which was the highest since July 7th.

WTI received some pressure to the downside on Monday as preliminary data due later in the day is expected to show activity growth in the US services sector contracted in July. The flash Services PMI, prepared by Markit Economics, is expected at 59.8, down from Junes final reading of 61.0. Meanwhile, US pending home sales are projected to have risen by a mere 0.5% in June, well behind the preceding months 6.1%.

Government data last week showed that nationwide crude oil inventories fell by 4 million barrels in the week ended July 18th. However, gasoline stockpiles surged by 3.4 million barrels to the highest level in four months, while distillate fuel supplies jumped by 1.6 million barrels.

Market players are awaiting the release of crucial US economic data this week to gauge demand prospects in the worlds biggest consumer. The Conference Boards consumer confidence for July, due to be released on Tuesday, is expected to have inched up to 85.3 from a month earlier.

On Wednesday, the US Commerce Department is likely to report that the US economy grew by an annualized 3.0% in the second quarter, compared to the preceding three months 2.9% contraction. Also on Wednesday, the Federal Open Market Committee will conclude its two-day policy meeting.

On Thursday, we are likely to see a moderate jump in initial jobless claims for the week through July 25th, but they are likely to remain in the shadow of Fridays non-farm payrolls and unemployment rate for July. US employers are likely to have added 230 000 jobs this month, compared to 288 000 in June, while the unemployment rate is anticipated to have remained flat at 6.1%.

Also due on Friday are the Markit Economics Manufacturing PMI, projected to come out unchanged, the ISM Manufacturing Report on Business and the Reuters/Michigan Consumer Sentiment Index, both expected to have marked an improvement.

According to data by the US Commodity Futures Trading Commission, hedge fund managers and other large speculators increased their bullish bets on WTI in the week ended July 22nd for the first time five weeks. Net-long positions jumped by 7.3% to 278 116 futures and options.

Geopolitical risks

Both crude benchmarks, and especially Brent, also felt pressured as tension cooled in the Gaza strip after Hamas agreed to a proposed 24-hour humanitarian ceasefire. However, broad market expectations called for limited downward moves as the prospects of a definitive ending to the clashes coming soon was seen as unlikely.

However, ongoing tension in other key points of interest for oil kept the market underpinned. Continuing clashes between Libyan government forces and Islamist militants in Benghazi over the weekend led to the death of more than 35 people, keeping supply prospects uncertain. Libya holds Africas biggest crude oil reserves.

Ben Le Brun, a market analyst at OptionsXpress, said for CNBC: “I would expect to see some buying support around these levels it is trading at right now. We are still keeping a very, very close eye on whats happening in the Middle East at the moment, so that should say oil prices are quite well supported.”

On Friday, Chinas National Bureau of Statistics is expected to report that manufacturing activity in July advanced for a fifth consecutive month, while a separate reading prepared by HSBC and Markit Economics will likely be flat. The Chinese Manufacturing PMI probably rose to 51.4 from 51.0 in June, while the HSBC Manufacturing PMI is expected to have remained unchanged at 52.0.

Technical view

According to Binary Tribune’s daily analysis, in case West Texas Intermediate September futures breach the first resistance level at $102.75, they will probably continue up to test $103.40. Should the second key resistance be broken, the US benchmark will most likely attempt to advance to $104.28.

If the contract manages to breach the first key support at $101.22, it will probably continue to drop and test $100.34. With this second key support broken, movement to the downside will probably continue to $99.69.

Meanwhile, September Brent on the ICE will see its first resistance level at $108.99. If breached, it will probably rise and test $109.59. In case the second key resistance is broken, the European crude benchmark will probably attempt to advance to $110.72.

If Brent manages to penetrate the first key support at $107.26, it will likely continue down to test $106.13. With the second support broken, downside movement may extend to $105.53 per barrel.