Crude oil trading outlook: WTI and Brent futures continue to climb amid Iraq violence

WTI and Brent futures continued upwards during early trade in Europe today. Iraq proved a significant bullish factor, as investors weighed the possibility of output disruptions from OPECs second-top oil producer. Elsewhere, the US economy, the largest consumer of oil, will see key data and policy decisions this week.

West Texas Intermediate futures for settlement in July traded for $107.35 per barrel at 7:28 GMT on the New York Mercantile Exchange, up 0.41%. Prices ranged from $106.87 to $107.54 per barrel. The US benchmark added about 4% last week, reaching a nine-month high at $107.68 on Friday, driven by the risk-off mentality of traders ahead of the weekend, with Iraq still in the danger zone.

Meanwhile on the ICE in London, Brent futures due in August stood for a 0.52% gain at $113.04 per barrel at 7:29 GMT. Daily high and low stood at $113.28 and $112.57 per barrel, respectively. Brent’s premium to August WTI stood at $6.45, after Fridays closing margin of $6.29. The European brand also gained about 4% last week, and also reached a nine-month high at $114.07 on Friday.

“Iraq is the key driver,” Ric Spooner, chief strategist at CMC Markets in Sydney, said for Bloomberg. “This is a situation that is very uncertain. The speed with which the insurgents have made incursions into Iraq shows how brittle things are in the country.”

Iraq

Iraq dominated oil markets late last week, as an Islamist organization, linked with al-Qaeda and boasting up to 5 000 fighters, according to the BBC, launched assaults on towns and army bases across the northwestern half of the country. The group, called ISIL (Islamic State in Iraq and the Levant), is a Sunni extremist brigade, fighting against a Shia-led government in Iraq.

Iraqi authorities reported “successful counterattacks” and claimed to have retaken a number of towns over the weekend. A major counter-offensive against the militia-controlled city of Tikrit will probably take place soon, the BBC reported.

ISIL, which is composed mainly of religious extremist, is said to also be employing former Iraqi military officers and soldiers, who were loyal to the late dictator Saddam Hussein, himself a Sunni. Other than former military and extremists, some tribal leaders have also expressed their loyalties to the ISIL, while others have declared otherwise, sending troops to aid Baghdads military. Meanwhile, Shia clerics have announced a “Call-to-arms” for volunteers to join the fight against the Sunni-led onslaught.

On the international level, Iran and the US expressed readiness to work together, with the goal of halting the extremists advance in Iraq and helping the country battle the “terrorists” (Iran is the only country, other than Iraq, to be populated mostly by Shia Muslims). The US has deployed an aircraft carrier in the Gulf, as US President Barack Obama is “considering the options”, after indicating the possibility of airstrikes against the militants as a probable form of military aid.

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

“The immediate impact on Iraq’s crude oil exports is limited for now as the conflict in northern and western Iraq is far from the southern — and Shiite-controlled — oilfields and export terminals from where all current oil exports originate,” Goldman Sachs Group Inc. analysts Damien Courvalin, Anamaria Pieschacon and Jeffrey Currie said in a report, cited by Bloomberg.

US demand

The US, which consumes 21% of all oil, will reveal industrial production for May today, and analysts project a 0.4% monthly growth, after -0.6% were logged in the previous month.

The key figure on CPI for May will be revealed on Tuesday, and forecasts suggest a 0.2% monthly growth, after 0.3% in April, and an unchanged 2.0% growth on an annual basis. Core CPI, which excludes the more-volatile food and energy, is expected to stand for a 0.2% monthly growth, and 1.8% year-on-year. Consumer prices are the main indicator on consumer spending, which generated about 80% of US GDP.

The Federal Open Market Committee (FOMC) will meet on Wednesday, to decide on monetary stimulus and interest rate for the US, decisions of massive influence on financial markets. Experts suggest another $10bn trim of monthly assets purchases, while the interest rate will probably remain unchanged at 0.25%. Every meeting and decision of the FOMC is closely watched by investors, looking for cues as to the direction and expectations for the world’s top economy.

Elsewhere, the Eurozone, which accounts for about 14% of total oil consumption, will post final figures on CPI for May later today, and experts forecast a -0.1% standing on a monthly basis, after 0.2% growth in April, and an unchanged 0.5% year-on-year.

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 $107.60, it probably will continue up to test $108.30. Should the second key resistance be broken, the US benchmark will most likely attempt to advance to $108.91.

If the contract manages to breach the first key support at $106.29, it will probably continue to drop and test $105.68. With this second key support broken, the movement to the downside will probably continue to $104.98.

Meanwhile, August Brent on the ICE will see its first resistance level at $113.69. 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 $115.76.

If Brent manages to penetrate the first key support at $111.62, it will likely continue down to test $110.77. With the second support broken, downside movement may extend to $109.55 per barrel.