Crude oil trading outlook: WTI and Brent futures higher, China factories score higher; US EU data ahead

WTI and Brent futures were slightly higher during early trade in Europe today. China posted improving factory readings earlier today, ahead of more economic data from the US and EU. Iraq fighting continued, though traders are confident the south oil industry will be safe.

West Texas Intermediate futures for settlement in August traded for $105.72 per barrel at 6:34 GMT on the New York Mercantile Exchange, up 0.33%. Prices ranged from $105.43 to $105.85 per barrel. The US contract dropped 0.35% yesterday, after losing about 1% last week.

Meanwhile on the ICE in London, Brent futures due in August stood for a 0.12% drop at $112.50 per barrel. Daily high and low stood at $112.64 and $112.32 per barrel, respectively. Brent’s premium to WTI stood at $6.78, after Friday’s closing margin of $6.99. The European contract dropped 0.83% on Monday, after a further 1.3% loss last week.

“The geopolitical premium is starting to be worn down,” Jonathan Barratt, chief investment officer at Ayers Alliance Securities in Sydney, said for Bloomberg. “The market was too long thinking greater things were going to happen in Iraq. If prices can’t stay at this level, they have to go lower.”

Iraq

The Sunni-extremist Islamic State in Iraq and the Levant (ISIS) declared the creation of an Islamic state (Caliphate) stretching from Aleppo in Syria to Diyala in Iraq, the BBC reported yesterday. The organization demanded all Muslims “pledge allegiance” to its leader and “reject democracy and other garbage from the West”.

Meanwhile, the Iraqi army continues fighting Sunni militants across the country. The military began a strategic offensive against the insurgent-held northern city of Tikrit, but have so far failed to capture it, the BBC reported.

Militants control swathes of northern Iraq and eastern Syria, after a quick advance surprised the Iraqi army, which withdrew mostly without fights.

The Iraqi government insisted insurgents do not threaten Baghdad, nor the southern oilfields, which account for more than 75% of Iraqi oil output. Furthermore, the Iraqi oil minister said production and exports will actually increase over the next month.

Iraq is OPEC’s second-top oil producer, and exports some 3 million barrels per day from its main southern terminal at Basra.

Demand outlook

Two separate reports on manufacturing PMI for June in China, where 11% of all oil is consumed, were released earlier today. HSBC confirmed its positive reading for the factory sector, logging a 50.7 reading, after its preliminary 50.8 of last week. A reading of 50 or higher means expansion of economic activities, and vice versa. The bigger the distance from 50, the greater the pace of contraction or expansion.

Meanwhile, the Chinese government posted its own reading on Junes manufacturing PMI, for a standing of 51.0.

Thursday will see services PMI readings, again from both sources.

US, Eurozone

In the US, which account for 21% of total oil consumption, ISM’s final reading on manufacturing PMI for June will be released today. Analysts predict a standing of 55.8, after the 55.4 of May.

A separate report on May factory orders is due on Wednesday, which are also projected to have grown. ISM will post its non-manufacturing PMI for June on Thursday, and experts suggest accelerating growth in the services sector as well.

Thursday will feature the key report on employment for June. The unemployment rate is set for an unchanged 6.3%, while nonfarm payrolls have probably added 210 000 – 213 000, after a 217 000 figure for May. Payrolls are a leading indicator for the overall health of the economy.

Elsewhere, the Eurozone, which consumes 14% of all oil, will post unemployment rate and manufacturing PMI for May later today. Experts suggest unemployment will remain unchanged at 11.7%, while factories probably also expanded as quickly as before, for a reading of 51.9.

Thursday will see services PMI for June and retail sales for May, as well as a key European Central Bank (ECB) decision on the benchmark lending rate and deposit rates. The ECB cut both rates last time, for a 0.15% central lending rate and -0.10% deposit rate, which taxes commercial banks if they keep their money out of circulation.

Technical view

According to Binary Tribune’s daily analysis, in case the West Texas Intermediate August future on the NYMEX breaches the first resistance level at $105.87, it probably will continue up to test $106.36. Should the second key resistance be broken, the US benchmark will most likely attempt to advance to $106.97.

If the contract manages to breach the first key support at $104.77, it will probably continue to drop and test $104.16. With this second key support broken, the movement to the downside will probably continue to $103.67.

Meanwhile, August Brent on the ICE will see its first resistance level at $113.05. If breached, it will probably rise and probe $113.75. In case the second key resistance is broken, the European crude benchmark will probably attempt to advance to $114.19.

If Brent manages to penetrate the first key support at $111.91, it will likely continue down to test $111.47. With the second support broken, downside movement may extend to $110.77 per barrel.