Crude oil trading outlook: WTI and Brent futures add after a violent weekend in Iraq

WTI and Brent futures were higher during early trade in Europe today, after Islamist militants seized more strategic towns during the weekend. Elsewhere, HSBC posted its reading on Chinese factories, logging a sizable increase for the first time in six months. More data from the Eurozone and the US is due later today.

West Texas Intermediate futures for settlement in August traded for $107.20 per barrel at 7:06 GMT on the New York Mercantile Exchange, up 0.39%. Prices ranged from $106.98 to $107.45 per barrel, reaching a nine-month high. The US contract added about 0.6% last week.

Meanwhile on the ICE in London, Brent futures due in August stood for a 0.45% gain at $115.33 per barrel at 7:08 GMT. Daily high and low stood at $115.45 and $114.75 per barrel, respectively, nearing an 18-month peak. Brent’s premium to August WTI stood at the quite significant $8.13, after last weeks closing margin of $7.98. The European contract gained more than 2% last week.

“There is a fairly significant risk premium built in to prices now,” Ric Spooner, chief strategist at CMC Markets in Sydney, said for Bloomberg. “If it continues to unravel quickly with Baghdad looking under threat, we might see that risk premium extended.”

Iraq

Sunni militants, led by a group of extremists called ISIS (Islamic State in Iraq and the Levant), continued fighting security forces over the weekend, capturing a strategic border crossing into Syria. Also, the key town at Tal Afar and its airport have reportedly fallen to Islamist fighters, in addition to more towns in predominantly Sunni regions.

“The south of the country is not beyond the geographic reach of extremist groups seeking to undermine the government,” analysts at Barclays said in a note, cited by Bloomberg. “We believe that any significant uptick in unrest in the south, even if oil facilities were spared, would likely accelerate the exodus of foreign oil workers out the country.”

Authorities assured that the military were in control of the refinery, and that the militants were being pushed back. The government also insisted insurgents do not threaten Baghdad, nor the southern oilfields, which account for 90% of Iraqi oil output.

Iraq is OPEC’s second-top oil producer, and exports some 3 million barrels per day from its main southern terminal at Basra.

Demand outlook

HSBC released its preliminary reading on Chinas manufacturing PMI for June earlier today. The figure surprisingly beat expectations to stand at 50.8, to log the first monthly expansion in the factory sector since January. Later this week, industrial profits will be reported on Friday, and the industrial sector accounts for nearly half of Chinese GDP.

Later today, the Eurozone, which accounts for about 14% of total oil consumption, will also report preliminary PMIs for June. Both services and manufacturing in France are expected to contract, with readings just below the 50 mark. Germany is set for more expansive factory sector and slightly slower growing services sectors. The Bloc as a whole will be somewhere between the two, with analysts forecasts of standings at 52.2 for factories and 53.3 for services. About 70% of EU GDP is from services, with industries adding about 27%.

The US will post housing data today. The existing home sales annualized rate has probably increased by 2.2% on a monthly basis in May, after 1.3% in April, for a figure of 4.73 million since a year before. New home sales for May will be reported tomorrow, with expectations of gains there as well. The real estate sector accounts for 13% of US GDP.

Consumer confidence in the Eurozone and in the US will also be reported tomorrow. The German Ifo institute will probably reveal steady sentiment for the EU for July, with expectations for a standing of 110.2, after 110.4 in June. Meanwhile, the Conference Board is set to unveil growing confidence in the US for July, with a forecast reading of 83.5, after 83.0 in June.

Technical view

According to Binary Tribune’s daily analysis, in case the West Texas Intermediate August future on the NYMEX breaches the first resistance level at $107.24, it probably will continue up to test $107.64. Should the second key resistance be broken, the US benchmark will most likely attempt to advance to $108.36.

If the contract manages to breach the first key support at $106.12, it will probably continue to drop and test $105.40. With this second key support broken, the movement to the downside will probably continue to $105.00.

Meanwhile, August Brent on the ICE will see its first resistance level at $115.14. If breached, it will probably rise and probe $115.46. In case the second key resistance is broken, the European crude benchmark will probably attempt to advance to $115.82.

If Brent manages to penetrate the first key support at $114.46, it will likely continue down to test $114.10. With the second support broken, downside movement may extend to $113.78 per barrel.