Oil trading outlook: WTI futures ease off 6-week highs as US crude supplies seen rising, Ukraine talks

Both West Texas Intermediate and Brent crude benchmarks eased in early European trading on Tuesday ahead of government data that may show US crude oil inventories rose for a 12th week in 13 in the seven days ended April 11th. Investors also eyed the upcoming diplomatic meeting in Geneva where Western powers, Russia and Ukraine will hold talks to possibly deescalate the built up geopolitical tension and mark peaceful progress. Market players also awaited the release of key US economic data points.

On the New York Mercantile Exchange, WTI crude for delivery in May traded at $103.35 per barrel at 6:59 GMT, down 0.67% on the day. Prices shifted in a daily range between $103.65 and $103.24 a barrel. The US crude benchmark rose by 0.3% to $104.05 a barrel on Monday, marking the highest close since March 3rd. Prices have gained 5.2% so far this year.

Meanwhile on the ICE, Brent futures for delivery in June stood at $108.80 per barrel, down 0.25% on the day, having varied in a range between days high and low of $108.99 and $108.45 a barrel. The contract added 1.55% on Monday and settled at $109.07 a barrel. Brent traded at a premium of $6.23 to WTI for delivery in the same month, up from $5.86 on Monday.

Oil prices were pressured amid speculations government data tomorrow may show a 12th rise in US crude inventories in 13 weeks. According to a weekly Bloomberg News survey, US crude stockpiles probably rose by 1.5 million barrels in the week ended April 11th, while motor gasoline supplies, a closely-watched category during the summer season, likely declined by 1.75 million barrels.

The industry-funded American Petroleum Institute will release its separate report later today, but it is deemed less popular than EIAs numbers as it is based on voluntary information from operators of pipelines, refineries and bulk terminals. In contrast, the government requires reports to be filed with the Energy Information Administration.

US data

The oil market received a boost yesterday after another upbeat report spurred optimism the US economy has recovered from a slowdown induced by harsh winter weather.

The Commerce Department’s Census Bureau reported that retail sales in the US jumped by 1.1% in March, the most since September 2012, exceeding analysts’ expectations for 0.8% growth. Moreover, February’s reading received an upward revision to 0.7% from initially estimated at 0.3%, adding to recent data points which showed the US economy has overcome a slowdown due to inclement winter weather.

Ten of thirteen categories included in the calculation of the indicator showed an improvement. Sales at auto dealers jumped by 3.1% in March, up from 2.5% the previous month. Retail sales excluding autos rose by 0.7% from 0.3% in February, beating expectations for a 0.5% rise.

Market players are now awaiting the release of key economic data from the US to gauge the strength of the economy, including consumer inflation, housing data, initial jobless claims and New York and Philadelphia manufacturing gauges.

Consumer prices are expected to have risen by an annualized 1.4% in March, while the Core Consumer Price Index (Core CPI) likely remained flat at 1.6%. Month-on-month, both CPI and Core CPI are expected to register at 0.1%, the same as in February.

A separate report is projected to show manufacturing activity in the region of New York picked up in April after two months of downbeat readings.

Market players are looking ahead at Wednesdays housing data that should show a rise in housing starts in March and a minor decline in the issuance of building permits. A separate report is expected to show a second straight monthly expansion in industrial production, by 0.5%, after activity in the sector contracted by 0.3% in January.

Due on Thursday are weekly initial unemployment claims and the Philadelphia Fed Manufacturing Index, which is expected to have marked a second straight month of expansion.

Confirmation of the positive forecasts or even stronger readings would improve oils demand prospects in the worlds top consumer, and is therefore considered bullish.

Ukraine talks

The oil market was also pushed lower on Tuesday ahead of a diplomatic meeting in Geneva, due on Thursday, where Western powers, Ukraine and Russia will hold negotiations that would hopefully achieve progress toward a peaceful resolution to the crisis in Ukraine.

Tan Chee Tat, investment analyst at Singapores Phillip Futures, said, cited by CNBC: “Talks are being arranged between Western powers, Russia and Ukraine to resolve the current crisis through diplomatic efforts, so there has been an easing of crude oil prices.”

However, the European Union and the United States continued to consider further sanctions on Russia after pro-Russian separatists chose to ignore Kievs Monday morning deadline to leave government buildings in eastern Ukraine, which they had previously seized.

The European Union agreed on Monday to expand the list of people sanctioned due to their alleged participation in the violation of Ukraines sovereign integrity. Further penalties may be considered as well.

US President Barack Obama held a phone call with his Russian counterpart Vladimir Putin saying Moscow will face additional sanctions, if it continues with its course, and that Russias actions were not helping to find a diplomatic resolution to the crisis.