Crude oil trading outlook: futures trade higher after fighting in Libya, Ukraine election in focus this week

Crude oil futures extended last weeks rally during early trading in Europe today, as bloody fighting in Libya over the weekend boosted the risk premium. Elsewhere, Ukraine is preparing to hold presidential elections this week, and Kiev began talks in an attempt to deescalate tensions and provide a safer environment for the vote.

West Texas Intermediate futures for settlement in July traded for $101.84 per barrel at 6:41 GMT on the New York Mercantile Exchange, adding 0.26%, daily prices between $101.52 and $101.87 per barrel. Last week the contract added more than 2% as driving season in the US draws nearer.

Meanwhile on the ICE in London, Brent futures due in July recorded a 0.40% rise to trade for $110.19 per barrel at 6:34 GMT. Prices ranged from $109.73 to $110.20 per barrel, nearing a two-month high. Brent’s premium to WTI July contracts stood at $8.35, widening Fridays closing margin of $8.17. Last week the contract gained 2.30% with support from Ukraine and higher gasoline demand in the US.

Libya

Libya holds Africas biggest oil reserves and has a potential output of more than 4 million barrels per day. However, as of last Thursday output is at 200 000 barrels daily, according to the National Oil Corporation.

The country has seen much turmoil since the ousting of Colonel Muammar Gaddafi. Now Libya has an Islamist-backed government, and the presence of religious hardliners in Tripoli fueled dissent among the rebels, who took down Gaddafis regime.

The powerful rebel brigades, alongside forces loyal to retired colonel Khalifa Haftar stormed the Libyan parliament on Sunday, killing two. The militias demanded the body be disbanded and a new structure be set in its place, in order to draw a non-Islamist constitution. The government assured it was in control, but warlords have been controlling large fiefdoms since the Arab spring began.

“Theres no real parliament in here, in Libya. Theres no real government, theres militias everywhere,” said National Forces Alliance party member Tawfik Breik, the BBC reported.

Elsewhere in the country, El Feel oilfield has once again been closed, after a brief reopening last week. It is not clear whether the closure is in connection with the escalating turmoil, but it has nevertheless stifled hopes of improved Libyan oil output.

“[Libya’s crude production] is already impaired and certainly not positive, which should be supportive of higher prices,” said for Bloomberg Michael McCarthy, chief strategist at CMC Markets in Sydney. “Adding the potential for escalation in Ukraine, it’s quite clear the risks that oil is on the upside this week.”

Ukraine crisis

Kiev is holding talks with political and civic leaders in an attempt to devise a way out of the crisis, which has dominated the geopolitical scene for the past months. However, separatist militia were not represented. Acting Ukrainian President Olexandr Turchynov said Kiev was prepared to listen to rebels, but they must lay down their arms first.

The talks are part of the Organisation for Security and Co-operation in Europe’s “roadmap” out of the crisis and an attempt to defuse tensions before the presidential elections on May 25th. The US threatened more sanctions if “Russia or its proxies” try to ruin the vote.

“In the run up to the elections next week the tensions will continue,” said for Bloomberg Eugen Weinberg, head of commodities research at Commerzbank AG in Frankfurt. “Even after the presidential elections it’s unlikely to calm down. So this factor of instability is likely to stay.”

Previously, Donetsk and Luhansk regions declared independence, following the referendum last Sunday. Separatist leaders said all Ukrainian troops in the provinces will be regarded as “occupying” forces. The Kremlin said it expects the “will of the people be implemented,” though has yet to comment on the rebels’ requests for Moscow to incorporate the regions in the Russian Federation.

Technical view

According to Binary Tribune’s daily analysis, in case the West Texas Intermediate July future on the NYMEX breaches the first resistance level at $101.91, it probably will continue up to test $102.24. Should the second key resistance be broken, the US benchmark will most likely attempt to advance to $102.71.

If the contract manages to breach the first key support at $101.11, it will probably continue to drop and test $100.64. With this second key support broken, the movement to the downside will probably continue to $100.31.

Meanwhile, July Brent on the ICE will see its first resistance level at $110.24. If breached, it will probably rise and probe $110.73. In case the second key resistance is broken, the European crude benchmark will probably attempt to advance to $111.41.

If Brent manages to penetrate the first key support at $109.07, it will likely continue down to test $108.39. With the second support broken, downside movement may extend to $107.90 per barrel.