Crude oil trading outlook: futures decline amid weak China data; US inventories figures

West Texas Intermediate and Brent futures retained yesterday’s losses during early European trading, as weak data on Chinese manufacturing activity met bullish sentiment from US inventories data and lingering tensions in Ukraine.

The New York Mercantile Exchange saw WTI crude contracts for settlement in June standing at $101.63 per barrel at 6:32 GMT, adding a 0.12% drop to yesterday’s 1.83% decline. The session’s high and low were at $101.99 and $101.50 respectively.

Meanwhile on the ICE, Brent futures for settlement in June traded at $109.20 per barrel at 6:33 GMT, registering a loss of 0.06% to last session’s close, accumulating a total of 0.68% drop for the two days. Prices for European benchmark futures varied between $109.50 and $109.06. Brent traded for $7.57 more than its US counterpart, expanding yesterday’s closing premium of $7.52, and registering the widest gap in almost a month.

West Texas Intermediate fell sharply yesterday on news that manufacturing activity in China registered a lower-than-expected PMI. According to HSBC’s preliminary report, the manufacturing PMI recorded 48.3 for April, in contrast with a 48.4 forecast. This translates to a slightly lower-than-before pace of slow-down in the world’s second oil consumer, but also boosts negative sentiment, as the reading is worse than the forecast and is still well-below the “50” contraction-expansion figure.

“China is slowing down and thats a concern, but people dont expect it to fall off a cliff,” said for Reuters Tony Nunan, oil risk manager at giant Mitsubishi Corp; “Going by fundamentals and without the current risk premium on oil, Brent should be closer to $100 a barrel with the U.S. benchmark around $90.”

Later today is due preliminary data on the manufacturing PMI of the Eurozone, Germany and France for April, with expectations supporting bullish sentiment. France’s gauge is expected to show a slight slow-down of growth to stand at 51.9, down from the 52.1 reading for March, while Germany is forecast to register a bump to 54.0, up from 53.4. The bloc’s figure is to show flat growth, matching last month’s performance.

Elsewhere, Ukraine remains an important support for oil prices, as tensions there don’t seem to cool down. The failed measures of the Geneva talks last week partially countered bearish reports from China and the US, as American secretary of state John Kerry threatened further sanctions against Russia. Ukraine’s interim president Alexander Turchinov announced two men – including a politician from his party, were found dead with signs of brutal torture. This comes three days after fatal shooting at a militia-controlled checkpoint, which prompted Russian foreign minister Lavrov to blame the Ukrainian government of inciting the violence and failing to, or not wanting to, implement the Geneva measures.

Meanwhile, US vice-president Joe Biden landed in Ukraine yesterday for a 2-day visit, set to underscore American support for the government and to offer assistance in the economic and energy distribution sectors.

US oil inventories

Preliminary data from the American Petroleum Institute shows crude inventories in the US rose by 519,000 barrels last week, well-short of the 2.3 million barrel increase forecast and far-below last week’s figure of a 10m barrels gain in inventories. Gasoline stocks were said to have fallen by 3.39 million barrels, exceeding expectations of a 1.7-million decline, boosting strong bullish sentiment on the markets. Distillate fuel inventories rose by 570 000 barrels, the trade association reported, defying projections for a 0.46-million drop.

Later today the Energy Information Administration will release its weekly oil inventories report, providing stronger data on stocks in the US. Last week US crude oil supplies jumped by 10.0 million barrels to 394.1 million, sharply exceeding analysts projections for a moderate 1.75-million-barrel jump. This was the steepest build up in more than ten years, while gasoline decreased by only 0.15 million barrels, though the EIA reported that gasoline consumption was at the highest level since January.

Technical view

According to Binary Tribune’s daily analysis, in case WTI June crude manages to breach the first resistance level at $103.10, it will probably continue up to test $104.44. In case the second key resistance is broken, the US benchmark will probably attempt to advance to $105.24.

If the contract manages to breach the first key support at $100.96, it will probably continue to slide and test $100.16. With this second key support broken, the movement to the downside will probably continue to $98.81.

Meanwhile, Brent will see its first resistance level at $110.00. If breached, it will probably rise and test $110.72. In case the second key resistance is broken, the European crude benchmark will probably attempt to advance to $111.46.

If Brent manages to penetrate the first key support at $108.54, it will likely continue down to test $107.80. With the second support broken, downside movement may extend to $107.08 per barrel.