Oil May Test $100 on Strong Quarterly Profits: Survey

Sri Jegarajah|Reporter, CNBC Asia Pacific

Benchmark crude oil futures may test $100 this week on expectations the second-quarter U.S. earnings season may show stronger corporate guidance signaling the economic recovery may gain traction later in the year.

Still, optimism about a more robust earnings parade alone may not be enough to dispel the negativity from last week's dismal jobs report, elevated China inflation and continued stress along the European periphery. Fears are building that the Eurozone periphery debt crisis may spread from Greece to Italy.

Last week, NYMEX crude for August delivery settled at $96.20 a barrel on Friday, rising $1.26, or 1.3 percent, for the week. Meanwhile, front-month Brent settled Friday at $118.33 a barrel, up $6.56 a barrel or 5.87 percent.

Gains may continue this week, according to CNBC's weekly poll of oil analysts, traders and strategists. Out of nine respondents, five are calling for prices to rise, one says prices will be little changed while three expect a decline. The CNBC Survey correctly predicted the direction of oil prices last week.

"With good corporate earnings to start the season, and summer fuel demand in full swing the oil market should resume its bullish cycle," said Andre Julian, Chief Financial Officer at OpVest. "This week should be another transition week and we think crude will hold above $95. But, it continues to be a traders market so near-term support and resistance levels have become increasingly important."

Dow component Alcoa unofficially kicked off the second-quarter earnings season in the U.S. after the closing bell on Monday. Its profit from continuing operations excluding one-time items more than doubled from a year earlier to 32 cents a share. Revenue rose 27 percent to $6.6 billion, helped by rising prices for aluminum.

"Although the economic recovery is uneven, the overall outlook for Alcoa — and for aluminum — remains positive," said Alcoa's Chief Executive Officer Klaus Kleinfeld, adding that Alcoa still projects global aluminum demand to grow 12 percent this year and will double by 2020. "The aerospace sector has positive momentum and we expect 7 percent aluminum sales growth globally this year."

China Wildcard

Linda Rafield, Senior Oil Analyst at Platts said there was momentum for further gains on both NYMEX and Brent crude futures.

"I am looking for consolidation between $95.50 and $100 on NYMEX crude and a pullback to $113 in front-month Brent," she said. "Technically Brent closed a gap that formed mid-June so I am looking for consolidation, but at lower levels. China is still an important wildcard here with high inflation."

China releases second-quarter GDP numbers on Wednesday, with expectations growth will moderate to 9.5 percent for the quarter from 9.7 percent in the prior period. Economists say a modest slowdown should help assuage fears of a hard landing for the world's second-biggest economy.

Meanwhile, data on Saturday showed inflation accelerated at its fastest pace in China in three years. The inflation number and soft oil import data are negatives for China energy demand, said Phil Flynn at PFGBest.

"Data out of China show that oil imports hit an eight-month low," Flynn said. "This comes as China's Consumer Price Index rose 6.4 percent from a year ago hitting the highest level since the economic crisis began. All of this bodes poorly for future energy demand. We are still targeting $85 for crude despite the recent bounce."

Adding to the bear case, Societe Generale oil analysts led by Michael Wittner, noted that U.S. demand remained poor. Using weekly Department of Energy data, and an adjustment factor, Societe Generale estimates an annual drop of 500,000 barrels a day in total product demand in May and 700,000 barrels in June. On average, U.S. demand in the second quarter of 2011 is decreasing by a large 500,000 barrels a day versus the second quarter of 2010.