Crude oil underpinned by positive manufacturing PMIs

Crude oil was trading mixed this morning, with Brent down and WTI up. As a result, the price gap between the two contracts narrowed to just over $16, having exceeded $19 at one point last week. However Brent managed to pare its losses in the afternoon and was trading back in the positive territory at the time of this writing.

Brent’s initial weakness this morning was puzzling to say the least. For a start, positioning data from the ICE showed net speculative positions rose some 21% in the week to November 26. What’s more, both the official and HSBC’s version of the Chinese manufacturing PMI surveys were better than expected for the month of November. The European PMIs were mixed however with UK manufacturers seeing the fastest order book growth for 19 years while in Span manufacturing activity unexpectedly contracted.

The ISM reported its own PMI in the afternoon, showing a sharp rise in US manufacturing activity to 57.3 from 56.4 previously. This, as well as news of a bigger-than-expected rise in US construction activity, helped the WTI contract to extend its gains.

Last week WTI managed to hold its own above that long-term bullish trend line, around the $91/$92 area. But a separate, downward-sloping, trend line, which comes in around $94.00/50, is still intact and thus helping to limit the upside for now. If price manages to break above there, however, then $96.00 would become the immediate target for the bulls. But while within the $91.00-$94.50 range, I do not have a particularly strong view in terms of direction. Though given the extent of the recent sell-off, I wouldn’t be surprised to see WTI prices break higher at some point this week.

The stimulus for higher WTI oil prices could come in the form of increased demand from refineries, and/or a sharp reduction in crude stockpiles. At the moment, inventories remain well above the upper limit of the average range for this time of year, mainly due to the fact growth in demand is failing to keep up pace with the rising rate of oil production in the US.