Crude oil futures trading outlook: WTI and Brent hover near multi-month lows on bearish supplies

Both West Texas Intermediate and Brent crude benchmarks were little changed in early European trading on Friday after posting their biggest monthly declines in more than a year as a bearish global supply-demand outlook pressured prices. Brent gained some support as manufacturing activity in China expanded at the fastest pace in more than two years in July. Market players eyed upcoming manufacturing data from Europe and the US, as well as the US nonfarm payrolls and unemployment rate.

On the New York Mercantile Exchange, WTI crude for delivery in September stood at $98.03 per barrel at 7:02 GMT, down 0.14% on the day. Prices held in a daily range between $98.10 and $97.66. The US crude benchmark plummeted 2.09% on Thursday to close the session at $98.17, the lowest settlement since March 17th. The contract slid 6.8% in July, posting its worst monthly performance since May 2012.

Meanwhile on the ICE, Brent for settlement in the same month was down 0.01% to trade at $106.01 a barrel. Prices ranged between $106.12 and $105.58 a barrel. The European crude benchmark shed 0.46% on Thursday to settle the month at $106.02, dropping 5.6% for the month – the biggest decline since April 2013. Brent traded at a premium of $7.98 to its US counterpart, up from Thursdays settlement at $7.85.

Oil prices remained pressured to the downside after government data showed on Wednesday that US motor gasoline stockpiles rose to a four-month high, despite being in the middle of the peak US driving season. Additionally, a Reuters survey had shown earlier in the week that OPEC pumped more oil in July, compared to June, in spite of the turmoil in Iraq and Libya. Iraqs output remained near record-high levels.

US inventories

The Energy Information Administration reported on Wednesday that both gasoline and distillate fuel supplies gained in the seven days through July 25th.

Motor gasoline inventories rose by 0.365 million barrels to 218.2 million, the highest since March. This was below analysts’ projections for a 1-million jump, but also trailed API’s data which had shown on Tuesday a 60 000-barrel increase. Consumption of the fuel slid by 0.5% over the last four weeks to 8.95 million barrels per day, the lowest since May.

Distillate fuel stockpiles, which include diesel and heating oil, added 0.789 million barrels to stand at 126.7 million, the most since September. Analysts had expected a 1.5-million-barrel increase.

US crude oil inventories fell for a fifth week by 3.7 million barrels to 367.4 million in the seven days through July 25th, while Supplies at Cushing, Oklahoma dropped to 17.9 million barrels, the lowest since October 2008, down from 18.8 million a week earlier.

US crude demand may be additionally pressured by a prolonged shutdown of a Coffeyville, Kansas-based refinery which caught fire on July 29th. The 115 000-barrel-per-day refinery, which feeds crude from Cushing, Oklahoma, may see an extended maintenance of up to four weeks.

Global manufacturing

Oil prices, and particularly Brent, drew support as Chinas manufacturing activity expanded at the fastest pace in more than two years in July. Government data provided by the National Bureau of Statistics showed Chinas Manufacturing PMI edging up to 51.7, beating estimates for a jump to 51.4 from Junes 51.0.

The reading matched estimates by HSBC and Markit Economics, whose private gauge, at 51.7, was the highest in 18 months, in spite of trailing expectations for a jump to 52.0 from Junes final reading of 50.7.

The private report highlighted that output and total new orders both rose at the strongest rates since March 2013, while new export work increased at the second-fastest pace in over 3-1/2 years. As a result, purchasing activity rose solidly while job shedding eased for the second successive month and was only slight.

Hongbin Qu, Chief Economist, China & Co-Head of Asian Economic Research at HSBC commented on the report: “The HSBC China Manufacturing PMI rose to the final reading for July, the highest since early 2013. This is slightly lower than the flash reading released earlier, as several sub-indices saw small downward revisions. Nevertheless, the economy is improving sequentially and registered across-the-board improvement compared to June. Policy makers are continuing with targeted easing in recent weeks and we expect the cumulative impact of these measures to filter through in the next few months and help consolidate the recovery.

Market players now eyed the upcoming manufacturing data from the European Unions leading economies, as well as the US ISM manufacturing Report on Business, nonfarm payrolls, unemployment rate and consumer sentiment, to further asses global demand prospects.

Geopolitical tension in several key regions of interest for the oil markets provided some support, but only to a limited extent. Libyas oil disruptions are already priced in, while civil unrest in northern Iraq have failed to affect crude output in the south. Market players eyed President Vladimir Putins response to the latest wave of economic sanctions by the US and EU against Russia, including an expansion of the blacklist of individuals with close ties to Putin who allegedly play a vital role in the fueling of civil unrest in Ukraine.

Technical support and resistance

According to Binary Tribune’s daily analysis, in case West Texas Intermediate September futures breach the first resistance level at $99.48, they will probably continue up to test $100.79. Should the second key resistance be broken, the US benchmark will most likely attempt to advance to $101.73.

If the contract manages to breach the first key support at $97.23, it will probably continue to drop and test $96.29. With this second key support broken, movement to the downside will probably continue to $94.98.

Meanwhile, September Brent on the ICE will see its first resistance level at $106.60. If breached, it will probably rise and test $107.19. In case the second key resistance is broken, the European crude benchmark will probably attempt to advance to $107.78.

If Brent manages to penetrate the first key support at $105.42, it will likely continue down to test $104.83. With the second support broken, downside movement may extend to $104.24 per barrel.