Crude oil trading outlook: WTI futures gain on US supplies draw speculation, China; Brent steady

WTI futures were higher during early trade in Europe today, while Brent contracts were relatively unchanged. The private American Petroleum Institute (API) will post its reading on US oil inventories later today, and traders expect to see further draws, supporting crude contracts. China is also supportive, after a stimulus plan was revealed by the government.

West Texas Intermediate futures for settlement in July traded for $104.68 per barrel at 7:07 GMT on the New York Mercantile Exchange, up 0.26%. Prices ranged from $104.44 to $104.89 per barrel. Yesterday the contract added 1.70%, after on Friday WTI closed relatively unchanged for the week, at $102.71 per barrel.

Meanwhile on the ICE in London, Brent futures due in July stood for a 0.03% drop at $109.96 per barrel at 7:07 GMT. Daily high and low stood at $110.23 and $109.92 per barrel, respectively. Brent’s premium to WTI stood at $5.28, narrowing Mondays closing margin of $5.58. Yesterday the contract gained 1.27%, after last week the EU benchmark dropped about 0.5%.

US demand outlook

The weekly API report on US oil inventories is due later today, ahead of the official, government report tomorrow. Analysts interviewed by Bloomberg predicted a drop of 1.5 million barrels, while a separate Reuters poll suggested the same figure.

“The inventory report will be a key number,” Michael McCarthy, chief strategist at CMC Markets in Sydney, said for Bloomberg. “Brent is bumping up against a ceiling of $110 a barrel on the charts, while West Texas has got room to move up to about $105.25.”

Last week saw a number of positive reports for the worlds top economy, which accounts for 21% of total oil consumption. Payrolls and unemployment were reported at pre-recession levels, while the services and manufacturing sectors scored much better than expected, elevating outlooks for oil demand.

Later this week more key data is due. Retail sales are expected to post a preliminary 0.4% monthly growth for May, after muted 0.1% increase the previous month. On Friday PPI for May will be revealed, and analysts project a 0.3% gain on a monthly basis and 1.9% year-on-year.

China

China also offered support for crude oil today, as authorities introduced measures to help raise growth to earlier levels. Reserve requirements for banks, who lend to farming and small-to-medium sized companies was reduced.

“Chinas rate cut decision is another step towards supporting the domestic economy,” Ric Spooner, chief market analyst at CMC Markets in Sydney, said for Reuters.

Two important economic indicators for the Chinese economy were also reported today. CPI for May stood at 0.1% on a monthly basis, beating forecasts for a third month of deflation, while consumer inflation was at 2.5% on an annual basis, also above expectations. PPI for May was logged at -1.4%, after -2.0% in April. The gauge has not seen a positive reading since February 2012.

Earlier, on Sunday China revealed foreign trade data. Exports beat forecasts to log a 7.0% annual growth for May. However, imports surprisingly dropped to -1.6% on an yearly basis, down from -0.8% for April, and well below expectations for a 6% growth standing. Slackening imports can be translated into sluggish domestic consumption for China, which accounts for 11% of total oil demand. Furthermore, crude oil imports for the month declined by more than 9%, after a record high in April.

“There are still concerns over China’s domestic demand,” Will Yun added for Bloomberg. “Determining whether or not China is recovering is something we’ll need to wait and see.”

Later this week, Chinese industrial production for May will be posted on Friday. Experts suggest a steady 8.8% growth year-on-year, after 8.7% in April. The industrial sector accounts for nearly half of Chinese GDP. Also due on Friday, reports on fixed assets investments and retail sales for May are expected to reveal steady annual growth for both.

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 $105.11, it probably will continue up to test $105.82. Should the second key resistance be broken, the US benchmark will most likely attempt to advance to $107.06.

If the contract manages to breach the first key support at $103.16, it will probably continue to drop and test $101.92. With this second key support broken, the movement to the downside will probably continue to $101.21.

Meanwhile, July Brent on the ICE will see its first resistance level at $110.48. If breached, it will probably rise and probe $110.98. In case the second key resistance is broken, the European crude benchmark will probably attempt to advance to $111.79.

If Brent manages to penetrate the first key support at $109.17, it will likely continue down to test $108.36. With the second support broken, downside movement may extend to $108.86 per barrel.