Crude oil trading outlook: WTI and Brent futures fall, dollar weighs

WTI and Brent futures retreated during morning trade in Europe today, as a big crude find in Russia and a stronger dollar weighed on contracts. Meanwhile, air strikes on IS failed to scare investors, who now eye US employment data as a leading gauge for economic outlooks.

WTI futures for November delivery on the New York Mercantile Exchange traded at $92.89 per barrel at 6:54 GMT today, down 0.69% for the day. Prices had ranged from $92.82 to $93.42 per barrel. The US benchmark added ~1.4% last week.

Meanwhile on the ICE in London, November Brent stood at $96.56 per barrel, down 0.45%, with prices between $96.50 and $96.92 per barrel. The contract’s premium to its US counterpart narrowed to $3.67.

“The gain in front-month WTI was so big that we can now see some profit taking,” Ken Hasegawa, an energy trading manager at Newedge in Tokyo, said for Bloomberg. “A lot of longs were liquidated in the last two months as prices rose after the military strikes began, but so far there has been no supply disruption.”

The US-led coalition made further air strikes against ISIS refineries over the weekend, destroying four of the insurgents facilities in Syria, as well as checkpoints in Iraq. The coalition was joined by France and the UK last week, while Australia also sent a squadron of fighters, and is awaiting lawmakerss official approval to join air strikes.

The Islamic State (ISIS, IS, ISIL) claimed vast swathes of territory in Iraq and Syria over the past few months, banking on sectarian confrontation between Muslims, as well as anti-US and anti-Semitic rhetoric. The extremists spooked markets in June, after beating a numerically superior Iraqi army to gain control of the northern regions of the country.

The insurgents have failed, however, to threaten the major southern oilfields in Iraq, OPECs second-top exporter, and successful counterattacks by Kurdish fighters, in addition to wide Western backlash, have calmed markets and erased most of the risk premium.

The major factor on crude prices recently has been the economic growth in top economies, and the discrepancy between supply and demand.

US economic growth was the top story last week, with the Commerce Department revising the growth figure for the second quarter to 4.6%, the highest in six years. Investors now look to the key employment figures later this week, to confirm a strong outlook for the worlds top oil-consuming economy.

Bumper US economic readings, however, in addition to supporting demand outlooks, boost the US dollar, which in turn drags on prices. The dollar reached a new four-year high against a complex of other major currencies today, and could strengthen even further.

More US housing data, factory orders and a key consumer confidence gauge, alongside retail sales, employment and CPI figures for the EU will cover a plethora of economic activities on both sides of the Atlantic.

Meanwhile, China, the world’s second-top oil consumer, will also have key PMI figures posted.

Rosneft, OPEC

On the supply side, Russian state-owned Rosneft, the worlds largest oil producer, announced a billion-barrel oil find in the Arctic was confirmed, signaling that Western sanctions, which explicitly targeted Moscows Arctic scope, will not impede expansion.

The announcement was a contributing factor to Mondays crude prices retreat, as it adds to an already bearish situation.

OPEC and the International Energy Agency both lowered crude demand growth outlooks for 2015, while also noting ample supplies. OPEC also lowered its own marketable crude projection.

Investors are still closely looking at OPEC for cues on a potential production curb, as most OPEC members look to the $100 per barrel level as the lowest to meet budgetary expenses. The biggest member and de facto leader of OPEC, Saudi Arabia, however, has moved to dissuade markets of an imminent cut in output, as it seeks to keep a dominant market share.

Citigroup lowered its 2015 forecast for WTI prices by $10 a barrel to $89.50, and by $7.50 a barrel to $97.50 for Brent last Wednesday, outlining the market sentiment going into Fall.

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Technical support and resistance levels

According to Binary Tribune’s daily analysis for Monday, West Texas Intermediate November futures’ central pivot point is at $93.21. In case the contract breaches the first resistance level at $94.19, it will probably continue up to test $94.84. Should the second key resistance be broken, the US benchmark will most likely attempt to advance to $95.82.

If the contract manages to breach the first key support at $92.56, it will probably continue to drop and test $91.58. With this second key support broken, movement to the downside will probably continue to $90.93.

Meanwhile, November Brent’s central pivot point is projected at $96.99. The contract will see its first resistance level at $97.51. If breached, it will probably rise and test $98.03. In case the second key resistance is broken, the European crude benchmark will probably attempt to advance to $98.55.

If Brent manages to penetrate the first key support at $96.47, it will likely continue down to test $95.95. With the second support broken, downside movement may extend to $95.43 per barrel.