Crude oil trading outlook: WTI and Brent futures steady ahead of US inventories reports

WTI and Brent futures were steady during early trade in Europe today, after breaking a losing streak on Monday. Investors await two separate reports on US oil inventories, while positive economic readings could also offer some support.

WTI for September delivery traded for $98.42 per barrel at 7:13 GMT on the NYMEX, up 0.04% for the day. Prices ranged from $98.28 to $98.57 per barrel. The US benchmark added 0.4% on Monday, after having lost some 4.2% last week, with the September contract reaching a three-month low of $97.09 per barrel.

Meanwhile, September Brent on the ICE had dropped 0.08% to trade at $105.33 per barrel. Daily low and high were at $105.31 and $105.65 per barrel, respectively. Brents premium to its US counterpart stood at $6.91, after Mondays closing margin of $7.12. The European benchmark added 0.5% yesterday, after dropping 3.3% last week alone, for the September future to reach a four-month low of $104.39 per barrel.

“The market is relatively complacent – were oversupplied with oil. Traders are trying to work out the next driver,” Jonathan Barratt, chief investment officer at Sydney-based wealth management firm Ayers Alliance, said for Reuters. “Investors are keeping a close eye on oil inventory levels out of the U.S. as its the summer drive time. I would think prices will continue to remain bearish.”

The private American Petroleum Institute (API) will post its weekly reading on US oil inventories for the seven days ended August 1 today, and analysts expect a figure of -4.40 million barrels for crude. Meanwhile, a Bloomberg survey suggested gasoline stock will see draws for the first time since June in this weeks report, probably logging at 300 000 barrels lower. The official EIA report is tomorrow.

Last week, US motor gasoline stockpiles rose to 218.2 million, a four-month high, despite the US being in the middle of the peak driving season, while supplies at Cushing, Oklahoma, dropped to 17.9 million barrels, the lowest since October 2008, down from 18.8 million a week earlier. Crude oil inventories, however, fell for a fifth week by 3.7 million barrels to 367.4 million in the seven days through July 25th, while distillate fuel stockpiles, which include diesel and heating oil, added 0.789 million barrels.

Economic outlook

A couple of US economic gauges will be reported today, which could signal demand prospects for oil in the worlds foremost oil-consuming economy. Factory orders for June will be reported, and analysts expect a monthly growth of 0.6%. More importantly, ISM will post its reading on US services PMI for July today. The gauge is projected to stand at 56.5, slightly more than previously, meaning a greater pace of expansion for the services sector, which generates about 80% of US GDP.

Earlier today, a key reading on the Chinese economy was reported. HSBC logged its services PMI reading for July at 50.0, well below last months 53.1 standing, and significantly under the governments figure of 54.1, which was posted on Sunday. The Chinese economy accounts for 13% of total oil demand, the second largest share after the US 21%, and the services sector generates about half of Chinas GDP.

“I would like to see expectations of economic growth translate into demand but we havent seen it yet because prices are doing nothing,” Barratt said.

Previously, last week featured a number of readings on the two top oil-consuming economies, with the US reporting significant Q2 GDP growth, and disappointing employment figures, while China logged a significant expansion for its manufacturing sector, which generates about half of its GDP.

Gaza

Israel said it is withdrawing all its troops to defensive positions outside the Gaza strip, with the announcement coming just moments before the latest ceasefire was set to begin.

Israel said the main goal of its incursion, the destruction of Hamas tunnels into Israel, was achieved. The Israeli military said they had killed some 900 “terrorists”.

Palestinian officials say more than 1 800 Palestinians have been killed in the 28-day conflagration of the conflict, most of them civilians, while more than 9 000 were injured.

The UN reported on a number of occasions that Israel shelled its shelters, killing civilians. Israel has said it is investigating the “incidents”. UN Secretary-General, Ban Ki-moon welcomed Israels withdrawal, and called for all parties to resume talks.

Elsewhere, in the Middle East, Kurdish forces retook several towns from the Islamic State, while Libya warned of negative consequences of a global scale, should the country continue to spiral out of control. Traders, however, have largely priced in the risks over the already quite small output of Libya, the smallest in OPEC at some 400 000 barrels per day, as things could hardly get any worse.

“Market participants are doing an excellent job of ignoring the geopolitical risks,” Commerzbank oil analyst Carsten Fritsch said in a note to clients yesterday. “The oil market has settled into a dangerous state of complacency.”

Technical support and resistance levels

According to Binary Tribune’s daily analysis, West Texas Intermediate September futures central pivot point on the NYMEX is at $98.13. In case the contract breaches the first resistance level at $98.83, it will probably continue up to test $99.37. Should the second key resistance be broken, the US benchmark will most likely attempt to advance to $100.07.

If the contract manages to breach the first key support at $97.59, it will probably continue to drop and test $96.89. With this second key support broken, movement to the downside will probably continue to $96.35.

Meanwhile, September Brents central pivot point on the ICE is projected at $105.21. The contract will see its first resistance level at $105.91. If breached, it will probably rise and test $106.40. In case the second key resistance is broken, the European crude benchmark will probably attempt to advance to $107.10.

If Brent manages to penetrate the first key support at $104.72, it will likely continue down to test $104.02. With the second support broken, downside movement may extend to $103.53 per barrel.