Benchmark crude oil futures will likely extend last week's gains after Greece secured the latest portion of a European Union bailout package, sending the euro higher against the dollar.
AP
Across the Atlantic, Friday's robust ISM reading for June of national factory activity offset the gloomier China PMI number, which showed manufacturing activity falling to its lowest in nearly 28 months, raising fears of a hard-landing in the world's second-largest economy.
"Greece and the general direction of the Euro will have much to do with price action in WTI crude over the coming week," said Dhiren Sarin, Chief Technical Strategist, Asia-Pacific at Barclays Capital. "I'm more neutral for next week with a small positive bias if we get a break through $96/barrel in WTI crude."
On the currency front, Sarin warned euro/dollar was approaching range highs around 1.47. "You can't rule out the risk of a pullback from there for the Euro itself."
For this week, the main risk event will be the U.S. jobs report on Friday. The U.S. economy created 88,000 jobs in June, according to consensus forecasts, marking a slight improvement from the 54,000 for May but still well under the 200,000 seen on a consistent basis earlier in the year.
Last week, oil futures recovered from the four-month lows hit after the prior week's surprise move by the 28-nation International Energy Agency to release 60 million barrels of oil reserves. NYMEX crude for August delivery settled at $94.94 a barrel on Friday, rising $3.78, or 4.2 percent, for the week. Meanwhile, front-month Brent settled Friday at $111.77 a barrel, up $6.65 a barrel or 6.3 percent.
Holiday-Shortened Week May Cause Volatility
Gains may continue this week, according to CNBC's weekly poll of oil analysts, traders and strategists. Out of ten respondents, four are calling for prices to rise, four say prices will be little changed while two expect a decline. Another sub-par U.S. jobs report may cap those gains.
Linda Rafield, Senior Oil Analyst Platts, has a neutral call on oil. The holiday-shortened week in the U.S. may crimp volume and activity this week, possibly causing some volatile moves.
"If there are any surprises Thursday in the weekly oil stats, there will be a short-lived violent move ahead of Friday's job data but the jobs data has been a non-event recently," Rafield said. She forecast NYMEX would trade between $90-$95 this week while Brent may slip back below $110, "maybe even as low as $105."
On the outlook for the third-quarter, Rafield said a seasonal pick-up in demand due to the U.S. summer driving season could prove supportive "but that will be highly dependent upon the global economy coming out of this so-called soft-patch."
Gavin Wendt, Founding Director & Senior Resource Analyst at MineLife is bullish for the week ahead. He said the immediate impact of the strategic release of 60 million barrels of reserves by the International Energy Agency on June 23 "will be wearing off and we are now entering Q3, the traditionally high-demand driving quarter."