Crude oil trading outlook: WTI and Brent futures drop ahead of EIA report

WTI and Brent futures were lower during early trade in Europe today, as investors eye the upcoming official report on US oil inventories. Also on the radar is the OPEC meeting on Thursday, which could produce headlines, as the organization could move to support prices in light of recent slump.

WTI futures for October delivery on the New York Mercantile Exchange traded at $92.63 per barrel at 7:21 GMT today, down 0.13% for the day. Prices ranged from $92.57 to $93.03 per barrel. The contract has dropped ~0.6% so far this week, reaching a nine-month low at $91.80.

Meanwhile on the ICE in London, October Brent stood at $98.93 per barrel, down 0.23%, daily prices between a 16-month low of $98.88 and $99.47 per barrel. October Brent’s premium to its US counterpart narrowed to $6.30. The European contract dropped about 1% on Tuesday.

“After falling below the $100 milestone, Brent potentially could go further lower to around $95,” Tomomichi Akuta, senior economist at Mitsubishi UFJ Research & Consulting, said for Reuters. “Demand in the US is not rising that much, and there are concerns of a further weakening in global demand.”

Investors turn focus towards the official, government weekly report on US oil inventories later today. The industry-funded American Petroleum Industry (API) reported a drop of 1.9 million barrels for crude oil in the week through September 5th, while gasoline and distillates added 0.7m and 1.7m, respectively.

A Bloomberg survey suggests crude stocks have shrank by 1.5m, while distillates added 1m and gasoline inventories were unchanged. The Wall Street Journal projected 1.2m draw for crude, no change at gasoline and +0.6m barrels in distillates.

The US is, by a significant margin, the worlds top oil consumer, accounting for about 21% of total crude demand, and the level of supplies in the country can be a significant force on the oil markets.

“The market is still looking for further draws, even though we’ve seen a slight tick down of refinery utilization,” Michael McCarthy, a chief strategist at CMC Markets in Sydney, said for Bloomberg.

Traders also keep an eye on the upcoming meeting of Gulf Arab oil ministers in Kuwait on Thursday, where discussions will probably include Brent dropping to below $100 per barrel, the benchmark agreed by OPEC members as the lower end of acceptable pricing.

Saudi Arabia, by far the biggest producer in OPEC and the worlds largest crude exporter with daily shipments of some 10m barrels, could pare back some production in order to correct prices above the $100 level, and other producers have already voiced calls for such a move.

In the broader scheme, oil production is increasing worldwide, with war-torn Iraq and Libya increasing exports, despite ongoing intense battles. Iraq, OPECs second-top exporter, ships about 3m barrels per day with Baghdad planning to increase it to some 3.5m, while Libya, the organizations smallest producer is at ~0.7m, though it could rise to as much as 1.4m.

Ukraine

Developments on Ukraine were still in focus, as EU ministers gather to discuss when to implement the newly-agreed fresh sanctions against Russian state-owned oil companies.

Russia is the worlds top crude producer and second-top exporter, with government-owned companies dominating the industry.

Despite the measures explicitly targeting oil companies, investors shrugged off risks over Russian supplies, betting there will not be any globally negative implications of the confrontation between Moscow and the West in terms of oil supply.

“Threats in Ukraine and the Middle East appear to be abating, so we’re seeing a removal of risk premium,” McCarthy added for Bloomberg.

Meanwhile, the truce between rebels and Kiev was largely holding, despite reports of soldiers and civilians killed after the signing of the preliminary ceasefire last Friday.

Technical support and resistance levels

According to Binary Tribune’s daily analysis for Monday, West Texas Intermediate October futures’ central pivot point is at $93.07. In case the contract breaches the first resistance level at $93.62, it will probably continue up to test $94.49. Should the second key resistance be broken, the US benchmark will most likely attempt to advance to $95.04.

If the contract manages to breach the first key support at $92.20, it will probably continue to drop and test $91.65. With this second key support broken, movement to the downside will probably continue to $90.78.

Meanwhile, October Brent’s central pivot point is projected at $99.60. The contract will see its first resistance level at $100.18. If breached, it will probably rise and test $101.19. In case the second key resistance is broken, the European crude benchmark will probably attempt to advance to $101.77.

If Brent manages to penetrate the first key support at $98.59, it will likely continue down to test $98.01. With the second support broken, downside movement may extend to $97.00 per barrel.