Crude oil trading outlook: WTI and Brent futures steady ahead of US payrolls, China data on the weekend

Both WTI and Brent futures were little changed during early trade in Europe today. Yesterday the European benchmark gained, as the European Central Bank (ECB) unveiled measures to boost the economy, while the US brand dropped. Investors now eye a payrolls report from the US, arguably the most important leading indicator for the health of the economy. Elsewhere, China will post key foreign trade data on Saturday.

West Texas Intermediate futures for settlement in July traded for $102.50 per barrel at 6:59 GMT on the New York Mercantile Exchange, down 0.02%. Prices ranged from $102.37 to $102.58 per barrel. Yesterday WTI closed for a 0.16% loss, and so far for the week the contract has dropped about 0.2%.

Meanwhile on the ICE in London, Brent futures due in July stood for a 0.06% gain at $108.86 per barrel at 7:00 GMT. Daily high and low stood at $108.99 and $108.80 per barrel, respectively. Brent’s premium to WTI stood at $6.36, on par with Wednesday’s closing margin of $6.31. Yesterday the European brand closed for a 0.36% gain, and so far for the week the contract has lost about 0.5%.

US oil inventories

Wednesday’s Energy Information Administration (EIA) report on US oil inventories for the week through May 30 revealed a sizable drop for commercial crude supplies. Stockpiles were reported to have lost 3.4 million barrels, with a massive weekly drop for imports for a second week, which now have decreased by almost 1.5 million barrels per day (bpd) since mid May.

Crude in storage at Cushing, Oklahoma, declined by a further 0.3 million, while hubs at the Gulf Coast also logged a sizable drop of 6 million barrels.

Meanwhile, gasoline inventories added 0.2 million barrels, while distillate fuels supplies grew by more than 2 million.

Economic outlook

Eurozone

Earlier today, Germany, the Blocs top economy, posted seasonally adjusted industrial production for April. The figure was logged at a 0.2% monthly growth, after a downgraded -0.6% for March.

Yesterday the European Central Bank revealed the long-awaited interest rate decision. Borrowing costs were moved downwards to 0.15%, which is higher than the forecast 0.10%. Meanwhile, deposit rates were moved to negative territory, and now stand at -0.10%, which means ECB will tax commercial banks for keeping their money in deposit. The measures are aimed at revitalizing the European credit market, in order to breathe life into the economy and spur growth.

Also yesterday, the Eurozone, which consumes about 14% of the world’s oil supply, logged retail sales for April at 0.4% on a monthly basis, beating expectations and improving on the downgraded 0.1% growth from March.

Previously, the Eurozone posted more disappointing data, with CPI dropping to 0.5%, and GDP at a muted 0.2% quarterly growth, while services PMI logged a slowdown in expansion of the sector.

US

Later today, the US, which accounts for 21% of total oil consumption, will report key employment figures. Unemployment rate for May is expected to stand at 6.4%, after 6.3% for April. Meanwhile, nonfarm payrolls for May have probably added only 219 000, after a 288 000 figure for the previous month, signaling the US is not quite out of troubles yet.

Yesterday the weekly jobless claims report for the seven day through May 31 was posted. Initial applications for unemployment benefits increased more than expected to 312 000, after 300 000 were logged for the previous week. Meanwhile, continuing claims for the week ended May 24 were reported at 2.603 million, improving on expectations and on the previous standing.

China

Yesterday HSBC posted its reading on services PMI for May in China, which consumes about 11% of all oil. The figure, which measures private sector services growth, was logged at 50.7, after 51.4 for April. A reading above 50 means expansion, while anything below is read for contraction, and the greater the figure is from 50, the bigger the expansion or contraction is.

Previously, HSBC reported contracting factory activities in China, while the official government’s reports revealed an expanding manufacturing sector and a significantly growing services sector, conflicting with HSBC’s readings (Do note the government’s services gauge includes non private companies).

On Saturday China will report exports, imports and trade balance, with expectations of sizable growths both ways, after muted expansion were reported last month.

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 $102.91, it probably will continue up to test $103.35. Should the second key resistance be broken, the US benchmark will most likely attempt to advance to $104.00.

If the contract manages to breach the first key support at $101.82, it will probably continue to drop and test $101.17. With this second key support broken, the movement to the downside will probably continue to $100.73.

Meanwhile, July Brent on the ICE will see its first resistance level at $109.24. If breached, it will probably rise and probe $109.70. In case the second key resistance is broken, the European crude benchmark will probably attempt to advance to $110.43.

If Brent manages to penetrate the first key support at $108.05, it will likely continue down to test $107.32. With the second support broken, downside movement may extend to $106.86 per barrel.