Supply-side tensions vying with a softer global macroeconomic outlook will cloud the direction in benchmark oil markets next week though key U.S. data releases may help set the tone, according to CNBC's weekly survey of oil market sentiment.
Respondents were almost evenly split over the course prices are likely to take in the near term with six out of 13 of those polled expecting oil prices to rise and the remaining seven saying prices will fall.
Although positive momentum has been building, traders warned that this is far from ‘conviction buying’ since the volumes are not backing the upswing in prices. Trading volumes were light on Thursday, with Brent volumes down 18 percent from its 30-day average and U.S. crude off 9 percent from its 30-day average, according to Reuters data.
"The market continues to move higher, however, volumes are not there," said Mark Waggoner, President of Excel Futures in Bend, Oregon.
Benchmark Brent crude rose for a fifth day on Thursday, settled $1.08, or 1 percent higher, at $113.22 a barrel, the highest close for front-month Brent since May 3. The session high was $113.43. U.S. crude recovered to settle a penny higher at $93.36.
Bullish on China Stimulus
The survey's bullish contingent is basing their case on stimulus hopes from China after downbeat data this week from the world's second-largest economy.
China's exports grew just 1 percent in July from the previous year, battered by continued weakness in the euro zone, official data showed Friday. The headline number missed forecasts by a wide margin. A Reuters poll of economists forecast July exports to increase by 8.6 percent.
July exports are "really quite anemic at this point," PK Basu, Managing Director and Chief Economist, Asia (ex-Japan) at Daiwa Capital Markets told CNBC's “Cash Flow” after the numbers broke. "Imports decelerating after a strong number in May suggest domestic demand is not responding to monetary stimulus so far." That provides a "strong argument for a further rate cut and RRR (bank’s Reserve Requirement Ratio) cut."
China's consumer inflation eased to 1.8 percent in July from a year earlier, leaving some room for the nation's central bank to continue to ease monetary policy to support growth, data showed on Thursday.
"After China's inflation data showed further easing we think this could provide a catalyst for oil prices to edge higher next week," said IG Markets' Strategist Justin Harper. "This is based on the increased hopes that China may loosen monetary policy further, as it will be less worried about stoking inflation."
Harper added next week's "data dump" from the U.S. with housing starts, jobless claimsand retail sales "could lead to a choppy week for energy markets."
Recent global oil price gains were not justified as long as the macro outlook is "merely for more global muddling through," said Mike Wittner, Head of Commodities Research - Americas at Societe Generale, who has a 'bearish' view on prices next week.
"Recent price gains have been driven by hints and hopes of policy action from Europe, the U.S. and China, in combination with tight North Sea supplies in September, especially Forties (North Sea Forties crude, one of the four crude oil grades which makes up the Brent basket) . But the latter is temporary. Fundamentals are big picture balanced, not tight."
Output from the North Sea's second-largest crude oil stream is set to fall sharply in September, adding to signs of reduced supply from the home of the Brent benchmark used to price around two thirds of the world's oil, Reuters reported on August 6.
Norway's Troll crude oil stream is scheduled to load five cargoes in September, down from 14 in August, due to maintenance work, traders said, citing an export schedule sent to cargo owners. Daily supply will average 100,000 barrels per day, down from 271,000 bpd in August.
"Brent is facing tight supply as production slows in the North Sea, while embargoes against Iranian oil continue to take their toll," said IG Markets' Harper.
"Brent easily broke through $110 and is showing no signs of falling back below that. Meanwhile, U.S. crude has maintained its position above $90 a barrel with stockpiles lower than expected. Tropical Storm Ernesto is still a factor for the Gulf of Mexico and could support prices at this level."
What the Bears Say
Excel Futures' Waggoner, however, described crude oil markets as "overextended," adding that the North Sea supply squeeze is already "built in" to prices.
"China continues to slow," he explained. "Geopolitical risk is influencing the market, but investors may be at the end of their rope. The stock market is headed for a double top and I expect a correction in equities. Crude is due for a substantial correction soon."
U.S. government supply data next week may show imports rose "as many deliveries have been weather delayed," Waggoner noted, providing a possible catalyst for a reversal. "Labor Day supplies have already been produced. As U.S. demand starts to drop, I see the market taking a good chunk lower."
Brent may ease to around $102 and U.S. crude futures to $84.00 in the near-term, he said.
Dennis Gartman, Editor and Publisher of The Gartman Letter also says a correction may be on the cards. "Crude — Brent and WTI and perhaps even Dubai — is overbought and due to correct, but one has to suspect that the correction will be short lived and rather modest." U.S. crude futures contracts for near-term delivery may fall back down to around $90.50, Gartman said.
Still, if prices do make another leg higher that may raise the political heat on lawmakers to take action, Societe Generale's Wittner said, adding higher energy costs for consumers and businesses may re-invigorate the case for a release of strategic oil.
"Another five bucks and we start hearing about an IEA coordinated strategic stock release again," he said. "The market has totally forgotten about that but they haven't forgotten in Washington, London, Paris, and Tokyo."
Tom Weber at Portfolio Managers, Commodity Futures & Options added that policymakers couldn't afford to see a disorderly move higher in oil prices as "it'll put the brakes on any idea of global recovery."
Supply Side Pressures
Turning to the supply side, continued Middle East tension, tightness from the North Sea as noted earlier, tropical storm activity in the U.S. Gulf and the aftermath of a blaze at Chevron's 245,000 barrel per day San Francisco Bay area refinery in Richmond, California may combine to force prices higher, bullish respondents also noted.
One to three months is the preliminary estimate on how long it will take to repair the fire-damaged central crude oil refining unit at California's second largest refinery, Reuters reported, citing sources familiar with refinery operations on Thursday.
"Whilst Brent may dip a couple of bucks, it looks like $116 will be achievable by September" due to heightened supply risks, said Peter McGuire, Chief Market Strategist, Fx Global.
"Supply-side concerns are certainly at the forefront of traders' minds at present and they're using these concerns to drive prices," said Gavin Wendt, Founding Director & Senior Resource Analyst at MineLife in Sydney.
"Adding to the supply-side worries is the latest refinery outage in the U.S., which ensures that supply-side complacency has been removed," he said.
Chevron's Richmond, California refinery accounts for nearly 10 percent of the refining capacity in the U.S. West Coast, said Ultimate Wealth Report's Sean Hyman. "So as that influenced WTI crude upward, it may have influenced Brent upward as well,” he said.
Hyman added, "I expect Brent to remain at a premium because it's what is produced by the Iranians. So as long as these sanctions last, I think Brent could remain well supported just due to that. I'd say I'm bullish over the next month or two but somewhat neutral" for next week. "But the trend is upward, no doubt. I also feel that we've got a mini recovery going on in commodities as a whole, which also influences money-flows into oil as well."
—By CNBC's Sri Jegarajah
Follow Sri Jegarajah on Twitter: @cnbcSri