Crude oil trading outlook: WTI and Brent futures climb ahead of EIA data, FOMC meeting; Iraq support

WTI and Brent futures were higher during early trade in Europe today. The US Energy Information Administration will report on weekly oil inventories levels later today, while the Fed will hold a key meeting to decide on monetary policy. Iraq still offers support for prices, as fighting nears Baghdad.

West Texas Intermediate futures for settlement in July traded for $106.76 per barrel at 7:12 GMT on the New York Mercantile Exchange, up 0.38%. Prices ranged from $106.40 to $106.78 per barrel. The US contract dropped 0.51% yesterday, after logging no change on Monday. Last week saw a nine-month high for WTI.

Meanwhile on the ICE in London, Brent futures due in August stood for a 0.11% gain at $113.57 per barrel at 7:12 GMT. Daily high and low stood at $113.58 and $113.05 per barrel, respectively. Brent’s premium to August WTI stood at $7.39, after last sessions closing margin of $7.58. The European contract added 0.45% on Tuesday, after a further 0.43% gain on Monday. Brent also recorded a nine-month high last week.

Iraq

Sunni militants, led by a group of extremists called ISIS (Islamic State in Iraq and the Levant), continue to advance towards the Iraqi capital of Baghdad. Bitter fighting was reported some 60km north of the city, while more battles were fought to the west of Baghdad. Citizens have been reported to be stockpiling food and water, the BBC reported

Meanwhile, the Iraqi military commander of the province of Nineveh, which first came under attack from the Islamist, was dismissed by the Iraqi government, for failing to stop the militants from taking key cities. The city of Tikrit was said to house some 30 000-strong garrison of government troops, who fled when attacked by only several hundred insurgents.

Authorities have assured the populace that the rebels will not take Baghdad, and that food supplies are not in danger. They have also expressed confidence in a planned rapid counteroffensive. Also, they reinstated that the southern oilfields, which account for 90% of Iraqi oil output, were completely safe.

Iraq is OPECs second-top oil producer, and exports some 5-6 million barrels per day from its main terminal at Basra.

“Exports havent been affected yet, so the price gain weve seen so far is only on speculation that things might deteriorate further and instability will spread to the south of Iraq,” Ben Le Brun, a markets analyst at OptionsXpress in Sydney, said for Reuters. “But as soon as we hear about production affected, then we will start to see the price move up more dramatically. But its very hard to put a figure on this. In a worst case scenario, Brent could go above $120 at a minimum.”

US economic outlook

The US, which consume 21% of the oil in the world, posted the key reading on CPI on Tuesday. The figure was recorded at 2.1% annual growth and 0.4% month-on-month, while core CPI, which exclude food and energy, added 0.3% on a monthly basis and 2.0% year-on-year. All standings beat expectations and set a positive tone ahead of the Fed’s meeting tomorrow. CPI is a leading indicator for consumer spending, which generates about 80% of US GDP.

The reading on the annual CPI is a main indicator used by the Federal Reserve to gauge the direction of the economy, and therefore make adjustments to monetary policy. As previously indicated, the CPI target of the Fed is 2.0% on a yearly basis, and it acts towards it.

The Federal Open Market Committee (FOMC), which makes the decisions on policies, meets today. On the agenda are the key decisions on interest rates and on monthly assets purchases. Experts forecast another $10bn trim to purchases, while the main interest rate is expected to remain unchanged at 0.25%.

US housing data was also released yesterday. The annualized rate of housing starts dropped 6.5% on a monthly basis in May and stand at 1.001 million, while building permits’ annualized rate declined by 6.4% on a monthly basis to 0.991 million. The real estate sector accounts for about 13% of US GDP.

Oil inventories

The private American Petroleum Institute (API) reported its weekly reading on US oil inventories for the week ended June 13 yesterday. The Institute suggested a 5.7 million-barrel drop for crude oil stockpiles, while gasoline inventories levels dropped 48 000 barrels. A Bloomberg survey projected 0.750 million drop for crude, and 0.550 million for gasoline. The official government report is due later today.

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 $107.02, it probably will continue up to test $107.69. Should the second key resistance be broken, the US benchmark will most likely attempt to advance to $108.19.

If the contract manages to breach the first key support at $105.85, it will probably continue to drop and test $105.35. With this second key support broken, the movement to the downside will probably continue to $104.68.

Meanwhile, August Brent on the ICE will see its first resistance level at $114.11. If breached, it will probably rise and probe $114.78. In case the second key resistance is broken, the European crude benchmark will probably attempt to advance to $115.75.

If Brent manages to penetrate the first key support at $112.47, it will likely continue down to test $111.50. With the second support broken, downside movement may extend to $110.80 per barrel.