Crude oil trading outlook: WTI and Brent futures drop ahead of US inventories reports

WTI and Brent prices were well to the downside during early trade in Europe today, as investors weighed risks in Ukraine and the Middle East with the upcoming reports on US oil inventories.

WTI futures for delivery in September traded at $97.63 per barrel at 7:10 GMT on the New York Mercantile Exchange, down 0.46%. Prices ranged from $97.60 to $97.94 per barrel. The contract added 0.44% yesterday.

“We’ve reversed all of the overnight gains we saw for West Texas, and that’s not surprising,” Michael McCarthy, a chief market strategist at CMC Markets in Sydney, said for Bloomberg. “There’s a clear trend downward here. The market continues to focus on supply.”

Meanwhile, September Brent on the ICE in London stood at $104.22 per barrel, down 0.44%, daily prices between $104.19 and $104.61 per barrel. The contracts premium to its US counterpart was $6.59, same as last sessions closing margin. Brent dropped 0.3% on Monday.

US oil inventories

The US is the leading consumer of oil in the world, accounting for about 21% of total demand. The level of oil in storage is a key metric for market players, as it is a major influence on prices.

The industry-funded American Petroleum Institute (API) will post its weekly reading on US oil stocks later today, before the official government report on Wednesday. A Reuters poll suggested crude stocks decreased by 2.2 million barrels last week, with gasoline dropping as well, while a Bloomberg survey projected 1.75 million barrels of crude were drawn, alongside 1.5 million barrels of gasoline.

Last weeks log revealed a 1.8 million-barrel draw for crude stockpiles, levels dropping to the lowest since late February. Gasoline stocks lost 4.4 million barrels, while distillate fuels, which include diesel and heating oil, were down 1.8 million barrels.

Iraq, Ukraine

Iraqi President Fouad Massoum asked the deputy parliament speaker Haider al-Abadi to form a new government, in a move welcomed by the US. US President Barack Obama said the nomination was a “promising step forward”, and called on the new PM to form an inclusive government.

Incumbent PM Nouri Maliki has dubbed the nomination as unconstitutional, after accusing the President of “petty political schemes”, and said that he would “fix that mistake”. Monday saw troops and commandos personally loyal to Mr Maliki deploy at key points in Baghdad, as political developments take a turn for the worse amid the onslaught of the jihadists of the Islamic State (IS).

The US carried out air strikes on IS throughout the weekend, supporting the Kurdish forces. The aid was seen as a stabilizing factor the the country, and so far the insurgency has failed to affect output from OPECs second-top exporter.

Iraqi Oil Minister Abdul Kareem al-Luaibi said the countrys crude exports may exceed 2.5 million barrels daily in August, up 2.5% from July.

Elsewhere, Russian President Vladimir Putin said there was a agreement with the International Red Cross and the Ukrainian government for a humanitarian aid mission to be sent into eastern Ukraine. The mission is said to deliver food, water, power generators and other essential goods to civilians with some 300 lorries, which have already left Moscow.

The Red Cross said it had agreed in principal, but added that practical details need first be clarified, before a launch of the operation.

The West has warned Russia not to use a humanitarian or peacekeeping mission as a pretext to send troops to Ukraine.

“We look for geopolitical developments and equity swings to generally steer oil pricing through the rest of this week,” Ritterbusch & Associates said in a note.

Technical support and resistance levels

According to Binary Tribune’s daily analysis, West Texas Intermediate September futures’ central pivot point on the NYMEX is at $98.01. In case the contract breaches the first resistance level at $98.65, it will probably continue up to test $99.22. Should the second key resistance be broken, the US benchmark will most likely attempt to advance to $99.86.

If the contract manages to breach the first key support at $97.44, it will probably continue to drop and test $96.80. With this second key support broken, movement to the downside will probably continue to $96.23.

Meanwhile, September Brent’s central pivot point on the ICE is projected at $104.82. The contract will see its first resistance level at $105.29. If breached, it will probably rise and test $105.90. In case the second key resistance is broken, the European crude benchmark will probably attempt to advance to $106.37.

If Brent manages to penetrate the first key support at $104.21, it will likely continue down to test $103.74. With the second support broken, downside movement may extend to $103.13 per barrel.