Crude oil trading outlook: WTI futures drop, Brent steady after US oil report

WTI futures were lower during early trade in Europe today, while Brent was little changed, as largely expected draws from US oil stocks were priced in. Growing worries over a Russian invasion in Ukraine failed to lift the risk premium.

West Texas Intermediate futures for delivery in October traded at $93.62 per barrel, down 0.28%, at 7:10 GMT on the NYMEX. Prices ranged from $93.52 to $93.94 per barrel.

Meanwhile, October Brent on the ICE in London, stood for a 0.02% increase at $102.74 per barrel. Daily low and high were $102.50 and $102.75 per barrel, respectively. The contract’s premium to its US counterpart widened to $9.12. The European brand added 0.2% on Wednesday.

Oil “has just dropped so much from its peak and rightly so as it looks like there is crude everywhere,” Tony Nunan, a risk manager at Mitsubishi Corp, said for Reuters. “Theres just too much supply and weve had terrible demand.”

The US Energy Information Administration (EIA) posted its weekly report on oil stocks yesterday. Commercial crude supplies were shown to have dropped 2.1 million barrels in the week through August 22, beating estimates of a draw of 0.9m-1.9m barrels.

Supplies of crude at Cushing, Oklahoma, the biggest US storage hub and delivery point for NYMEX-traded contracts, rose to 20.7 million barrels from 20.2m a week earlier, after reaching half of year-ago levels two weeks ago.

Gasoline stocks dropped 1 million barrels , while distillates, a category which includes diesel and heating oil, were up 1.3m.

Refineries operated at 93.5% of their operable capacity, with gasoline production gaining to close on 10m barrels per day, while distillate fuel output was little changed at ~5m barrels daily.

Domestic crude production was little changed at 8.6 million barrels per day, more than 1 million above year-ago levels. Meanwhile, imports of crude stood at 7.6 million bpd, 1 million down from year-ago levels.

Ukraine

German Chancellor Angela Merkel has demanded an explanation by Russian President Vladimir Putin of numerous reports of Russian troops fighting in Ukraine, while the US said a Russian-directed counter-offensive in the region was taking place.

Reports of dozens of Russian armored vehicles entering Ukraine yesterday added to pressure on Russia, after several other such cases recently and the capture of 10 Russian paratroopers by Ukrainian military inside Ukraine.

For the first time in quite a while, Russian media have questioned the actions of the Kremlin and scrutinized its ambiguous and shady stance on the reports, reminding of the similar circumstances amid which Chechnya and Afghanistan have been invaded in the past.

Russia has repeatedly denied accusations that it supports the rebels in any way. A growing number of Russian heavy weaponry, including the system used to bring down the civilian airliner in June, and so-called “volunteers”, in addition to Russian troops reported on numerous occasions as fighting alongside the rebels and mysterious burials of Russian soldiers, who officially died on “military exercises”, raise serious questions.

Investors, however, seem to disregard the quite real possibility of a direct military confrontation between Russia and Ukraine, and all the geopolitical and economical risks that it brings.

“It looks like we’ve removed almost all of the risk premium associated with geopolitical problems, and we’re now returning to a more normal examination of supply and demand,” Michael McCarthy, a chief strategist at CMC Markets in Sydney, said for Bloomberg.

Technical support and resistance levels

According to Binary Tribune’s daily analysis, West Texas Intermediate October futures’ central pivot point is at $93.83. In case the contract breaches the first resistance level at $94.29, it will probably continue up to test $94.71. Should the second key resistance be broken, the US benchmark will most likely attempt to advance to $95.17.

If the contract manages to breach the first key support at $93.41, it will probably continue to drop and test $92.95. With this second key support broken, movement to the downside will probably continue to $92.53.

Meanwhile, October Brent’s central pivot point is projected at $102.61. The contract will see its first resistance level at $103.18. If breached, it will probably rise and test $103.63. In case the second key resistance is broken, the European crude benchmark will probably attempt to advance to $104.20.

If Brent manages to penetrate the first key support at $102.16, it will likely continue down to test $101.59. With the second support broken, downside movement may extend to $101.14 per barrel.