Crude oil trading outlook: WTI and Brent futures headed for big weekly gains amid violence in Iraq

WTI and Brent futures continued to extend their rally during early trade in Europe today. Both contracts received a major boost from the escalating conflict in Iraq, after the US expressed their resolve to support the Iraqi government, even militarily. Elsewhere, the US and China posted some encouraging data, further supporting crude oil.

West Texas Intermediate futures for settlement in July traded for $107.17 per barrel at 6:49 GMT on the New York Mercantile Exchange, up 0.60%. Prices ranged from $106.76 to $107.68 per barrel, reaching a nine-month high. WTI August contracts added 2.04%, and so far this week the US benchmark has added 1.6%.

Meanwhile on the ICE in London, Brent futures due in August stood for a 0.60% gain at $113.10 per barrel at 6:50 GMT. Daily high and low stood at $113.27 and $112.47 per barrel, respectively, reaching a nine-month high. Brent’s premium to August WTI stood at $6.70, after Thursdays closing margin of $6.64. Brents August contract added 2.79% yesterday, and so far this week the European brand has gained more than 4%.

“Oil is now in a new price territory and is likely to climb more as investors rework their positions, supported by the uncertainty and technicals,” Ken Hasegawa, Tokyo-based commodity sales manager at Newedge Japan, said for Reuters. “Given the break past key resistance at $105 a barrel, the U.S. benchmark may rise towards $112 over the next two weeks, the high touched last year, if it manages to break past the next ceiling of $110.”

Iraq

Iraq was the scene of a bloody religious onslaught over the last couple of days, when an Islamist organization, boasting some 5 000 troops, according to the BBC, launched assaults on towns in the northern provinces of the country.

Developments shook markets, as the US said they are “considering all options, including military”. Earlier, the Iraqi oil minister had said that the US would provide air support for Iraqi ground troops retaliating against the insurgents.

“There’s potential for disruption to spread around the Middle East and we’re talking about significant amounts of daily supply,” said for Bloomberg Michael McCarthy, chief strategist at CMC Markets in Sydney who predicts Brent may climb to $125 a barrel if there’s an attack on Baghdad. “The market got concerned about potential disruption in Libya; Iraq is a much more serious situation.”

Iraq is the second-largest OPEC oil producer, and shipped 5.43 million barrels from Basra on Wednesday alone, according to the oil minister.

Elsewhere, the conflict in eastern Ukraine continues inflaming, as a report of three Russian tanks entering rebel-controlled territory angered Kiev. Moscow denied the report and expressed concern over the continuing hostilities, the BBC reported.

“The lack of any progress whatsoever in efforts to stop the violence and halt military operations… is causing increasing concern,” Russian Foreign Minister Sergei Lavrov said.

US outlook, China

The US, which consume 21% of all oil, posted economic data yesterday. Retail sales were slightly below expectations in May, though still growing on a monthly basis. Core sales also grew at a slower pace. Also, jobless claims were reported yesterday, with slightly higher-than-expected figures on both initial and continuing applications.

PPI for May will be revealed later today, and analysts project a muted 0.1% gain on a monthly basis and 2.4% year-on-year. Also, the preliminary standing for Michigan Consumer Sentiment Index for June will be revealed today, with forecasts of a growth to 83.0, after 81.3 in May.

Previously, the US Energy Information Administration (EIA) posted its weekly oil inventories report for the seven day through June 6 on Thursday. The log revealed a 2.6-million-barrel drop for crude oil inventories, with a sizable decline for imports, which have now dropped almost almost 20% over the last two weeks. Meanwhile, gasoline stockpiles added 1.7M barrels, while distillates gained 0.9 million. The report also revealed sizable drops for distillates and gasoline production, with a downturn in the refinery utilization rate.

Elsewhere, China, which accounts for 11% of total oil demand, posted key data earlier today. Industrial production for May was logged at 8.8% annual growth, in line with expectations, after 8.7% in April. The industrial sector accounts for nearly half of Chinese GDP. Fixed assets investments for May added on forecasts for an annual growth of 17.2%. Retail sales for May in China also improved on expectations and on the previous reading to record an yearly growth of 12.5%, after 11.9% in April.

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 $107.54, it probably will continue up to test $108.54. Should the second key resistance be broken, the US benchmark will most likely attempt to advance to $110.14.

If the contract manages to breach the first key support at $104.94, it will probably continue to drop and test $103.34. With this second key support broken, the movement to the downside will probably continue to $102.34.

Meanwhile, August Brent on the ICE will see its first resistance level at $113.67. If breached, it will probably rise and probe $114.91. In case the second key resistance is broken, the European crude benchmark will probably attempt to advance to $117.08.

If Brent manages to penetrate the first key support at $110.26, it will likely continue down to test $108.09. With the second support broken, downside movement may extend to $106.85 per barrel.