Crude oil trading outlook: WTI and Brent prices headed for sizable weekly drop

WTI and Brent futures were higher during midday trade in Europe today, though headed for significant weekly losses, as investors saw brighter outlooks for Iraq. A bearish report on US oil inventories also weighed, while ongoing tensions over Ukraine offset further losses.

WTI for delivery in September traded at $96.13 per barrel at 14:37 GMT on the New York Mercantile Exchange, up 0.58%. Prices ranged from $95.32 to $96.25 per barrel. The contract added 0.23% yesterday, though it reached an eight-month low of $95.26, and is headed for a ~1.5% weekly drop.

Meanwhile, October Brent on the ICE in London traded at $102.38 per barrel, up 0.30%, daily prices between $102.05 and $102.77. The contract’s premium to its US counterpart was $6.25, after last session’s closing margin of $6.59. Brent dropped 2.81% on Wednesday, also reaching a thirteen-month low at $101.91, and is headed for a ~3% weekly loss.

“The market is oversold so a bit of buying is to be expected,” Bob Yawger, director of the futures division at Mizuho Securities USA Inc. in New York, said for Bloomberg. “The wildcard going into the weekend is the tension between Russia and Ukraine.”

Ukraine, Middle East

The controversial aid convoy, which Russia sent towards the embattled eastern regions of Ukraine, is to be inspected by Ukrainian authorities at the border, Kiev said.

The convoy was suspected of transporting military aid to pro-Russian rebels and Kiev said it would not allow it on Ukrainian territory.

Earlier, NATO and Kiev both warned of Russian combat-ready troops numbering 20,000-40,000 massed near the border with Ukraine, poised for an invasion. Moscow dismissed all allegations of a possible military intervention as well as accuastions that it is supplying the separatists.

NATO, however, confirmed reports that vehicles are entering rebel-controlled territory in Ukraine from Russia. “We see a continuous flow of weapons and fighters from Russia into eastern Ukraine, and it is a clear demonstration of continued Russian involvement,” Nato Secretary General Anders Fogh Rasmussen said.

Elsewhere, Iraq was still in focus, with EU foreign ministers meeting to decide whether to arm Iraqi Kurds.

Meanwhile, the political crisis seems to have eased, after incumbent PM Nouri Maliki announced he is stepping down, after days of confrontation and uncertainty. The move paves the way for a new government, possibly easing the fight against the jihadists if the Islamic State.

Iraq is OPEC’s 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.

US supplies

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.