Crude oil trading outlook: WTI and Brent futures gain on economic readings, Ukraine conflict

WTI and Brent futures traded higher during early hours in Europe today, after China reported improving factory outlooks on Sunday. Last week a number of positive US reports boosted sentiment, though a sizable gain in supplies was enough of pressure contracts lower for the week. Elsewhere, Ukraine saw renewed battles early on Monday, after some of the fiercest and deadliest fighting last week.

West Texas Intermediate futures for settlement in July traded for $103.17 per barrel at 6:59 GMT on the New York Mercantile Exchange, up 0.45%. Prices ranged from $102.84 to $103.35 per barrel. On Friday the contract closed for a 1.57% weekly loss, after the weekly EIA report revealed climbing supplies in top-consumer US.

Meanwhile on the ICE in London, Brent futures due in July recorded a 0.23% gain to trade for $109.66 per barrel at 6:50 GMT. Daily high and low stood at $109.87 and $109.46 per barrel, respectively. Brent’s premium to WTI stood at $6.49, largely on par with Fridays closing margin of $6.70. Last week the contract dropped 1.02%.

Demand outlook

Crude oil was pressured by a bearish report on US stockpiles last week, which recorded sizable weekly gains for commercial inventories. Cushing, however, saw further draws. Domestic production of crude was stale, while imports grew double what they had decreased the previous week, accounting for most of the supply gain.

Gasoline inventories were drawn, but a rise in consumption is hard to take away, since imports and production fell by the exact amount. However, a string of positive data from the US last week signaled recovering demand in the worlds top oil-consuming economy.

On Friday, reports showed a slight increase for personal income and a minor decrease in spending, while Chicago PMI added well above expectations, while Michigans consumer sentiment was unchanged. Earlier data on durable goods orders, consumer confidence and services PMI scored much better than expected, significantly boosting sentiment for the US economy.

Yesterday China, which accounts for 11% of world oil consumption, posted manufacturing PMI for May, logging 50.8, improving on Aprils 50.4, and exceeding forecasts of a standing of 50.6. Any reading below the boundary of “50″ means contraction in activities, and anything above it means expansion. The bigger the distance from 50, the greater the pace of expansion or contraction.

“The Chinese PMI figure came out a little bit better than expected and that gives the market hope that there might be a steadying process going on with the manufacturing sector and the economy generally,” said for Bloomberg Ric Spooner, chief strategist at CMC Markets in Sydney.

Later today, the EU, consuming 14% of all oil, will report the final standings of manufacturing PMI as well. Germany and France are forecast to reaffirm the preliminary readings of 52.9 and 49.3, respectively. The Eurozone as a whole is projected to log 52.5, same as the preliminary reading.

Also today, ISM will post its May manufacturing PMI report for the US. Analysts suggest an increase to 55.4, up from 54.9 for April. Factory employment will also be revealed by ISM, with forecasts of a standing of 55.7, adding on April’s 54.7.

Tomorrow will reveal HSBC’s manufacturing PMI for China, unemployment rate in the EU and factory orders for the US.

Ukraine

Hundreds of armed rebels press on with the attack on a military base, near the Russian-Ukrainian border in the region of Luhansk, Ukrainian news agency UNIAN reported. Border troops have sustained injured, but have reportedly repelled the initial assault.

Last week Ukraine saw some of the fiercest fighting since the conflict began earlier this year. Yesterday rebels shot down a military helicopter, killing at least 12 Ukrainian soldiers, including a high-ranking general, who headed special-combat training for the newly created National Guard. On Monday, separatist fighters assaulted Donetsk airport, only to suffer more than 100 dead, according to the “Donetsk People’s Republic” press office.

The conflict seems to have been galvanized by the presidential election in Ukraine, which took place last Sunday, May 25. The winner, collecting 54% of the vote, is billionaire and former foreign minister Petro Poroshenko. He vowed to punish the rebels, and to have the “anti-terrorist operation over within hours, not months”. He has previously said that he would also never recognize Russia’s annexation of the Ukrainian Black Sea peninsula of Crimea. Mr Poroshenko will be inaugurated on June 7.

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 $103.38, it probably will continue up to test $104.05. Should the second key resistance be broken, the US benchmark will most likely attempt to advance to $104.54.

If the contract manages to breach the first key support at $102.22, it will probably continue to drop and test $101.73. With this second key support broken, the movement to the downside will probably continue to $101.06.

Meanwhile, July Brent on the ICE will see its first resistance level at $109.95. If breached, it will probably rise and probe $110.50. In case the second key resistance is broken, the European crude benchmark will probably attempt to advance to $110.86.

If Brent manages to penetrate the first key support at $109.04, it will likely continue down to test $108.68. With the second support broken, downside movement may extend to $108.13 per barrel.