Crude oil trading outlook: WTI and Brent prices lower with US inventories, geopolitics on focus

WTI and Brent futures were well in the red during early trade in Europe today. Investors weighed mixed signals from the US inventories report on Wednesday with the ongoing geopolitical crises in Ukraine and the Middle East.

WTI for delivery in September traded at $97.14 per barrel at 6:51 GMT on the New York Mercantile Exchange, down 0.46%. Prices ranged from $97.07 to $97.46 per barrel. The contract added 0.23% yesterday, though it reached an eight-month low of $96.75.

Meanwhile, October Brent on the ICE in London traded at $104.56 per barrel, down 0.48%, daily prices between $104.51 and $104.90. The contract’s premium to its US counterpart was $7.42, after last session’s closing margin of $7.47. Brent added 1.13% on Wednesday, also reaching a nine-month low at $103.26.

Middles East

Iraqi Kurds are to receive military aid from the US and France, in the form of weapons and supplies, authorities said yesterday. The US have already reinforced their adviser team in the country by 150, and total US personnel in Iraq now numbers several hundred, though none will play any combat role.

Meanwhile, Iraqi politics were also in focus, as incumbent PM Nouri Maliki refused to step down until the Federal Court, Iraqs supreme judicial instance, rules on his objection to the Presidents actions.

President Fouad Massoum declined to nominate Maliki for a third term, effectively disregarding the constitution. He offered the job to a more consensual figure, the deputy parliament speaker Haider al-Abadi.

Maliki deployed forces personally loyal to him in Baghdad on Monday, and vowed to “fix the mistake” of the President.

Two car bombs killed at least 12 people in the Iraqi capital on Wednesday, in mainly Shia areas, Reuters reported.

“The situation in the North is desperate but the reality is the majority of the crude production is concentrated in the South of the country,” Phin Ziebell, economist at the National Australia Bank, said for Reuters.

Iraq is OPECs second-top oil exporter with daily shipments of more than 2.5 million barrels. Most of the production is situated in the south of the country, well away from the militants who are fighting with Kurdish and government forces in the north.

Elsewhere, Hamas and Israel agreed to a 5-day truce in Gaza, after intense talks in Cairo, Egypt. The conflict has claimed more than 2 000 lives since flaring back to life more than 5 weeks ago. Most of the casualties have been Palestinian civilians.

Across Egypt, Libyan MPs voted overwhelmingly in favor of calling for international assistance for “keeping civilians safe”, in light of growing tribal and insurgent conflicts. Several hundred people are believed to have been killed since tensions rose mid-July, with heavy clashes in the two main cities of Tripoli and Benghazi.

It is not clear whether the government asks for a peacekeeping mission or not, but the vote comes a day after Tripolis police chief was ambushed and killed. Right after the bill was voted, another decree was issued, disarming all militias in the country, though authorities can do little to enforce such a decision, the BBC reported.

Libya is currently OPECs smallest producer, with a daily output of some 0.5 million barrels, though the country holds Africas largest crude reserves and has a potential output of some 4 million barrels per day.

US inventories

The US Department of Energy’s statistical arm, the Energy Information Administration (EIA) posted its weekly report on US oil inventories yesterday. The log covers the week through August 8, and revealed a 1.4 million-barrel increase for crude stockpiles, after levels dropped to the lowest in six months last week. The gain was unexpected, analysts forecasting some 2m barrels down, and put pressure on crude contracts.

The surprise build in crude “is a disappointing result in terms of demand in the US,” Michael McCarthy, a chief strategist at CMC Markets in Sydney, said for Bloomberg.

Supplies at Cushing, Oklahoma, the largest storage hub in the US and the delivery point for the NYMEX contract, had logged 0.4m gains to stand at 18.4m barrels, after reaching a six-year low of 17.9m two weeks ago.

Gasoline stocks lost 1.2 million barrels, EIA reported, partially paring gains for crude. The largely expected drop comes at peak US driving season and adds to a 4.4m draw reported last week.

Meanwhile, distillate fuels, which include diesel and heating oil, were down 2.4 million barrels, dropping more than experts had projected and adding to the 1.8m decrease of last week’s log.

Crude oil production was slightly higher at 8.6 million barrels per day (bpd), while imports also logged minor gains at 7.5m bpd. Meanwhile, refinery utilization rate slightly decreased to 91.6%, while gasoline production was slightly lower at 9.5m bpd. Distillates output was slightly lower at 4.7m bpd.

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 $97.37. In case the contract breaches the first resistance level at $98.00, it will probably continue up to test $98.40. Should the second key resistance be broken, the US benchmark will most likely attempt to advance to $99.03.

If the contract manages to breach the first key support at $96.97, it will probably continue to drop and test $96.34. With this second key support broken, movement to the downside will probably continue to $95.94.

Meanwhile, October Brent’s central pivot point on the ICE is projected at $104.48. The contract will see its first resistance level at $105.71. If breached, it will probably rise and test $106.35. In case the second key resistance is broken, the European crude benchmark will probably attempt to advance to $107.58.

If Brent manages to penetrate the first key support at $103.84, it will likely continue down to test $102.61. With the second support broken, downside movement may extend to $101.97 per barrel.