Crude oil trading outlook: futures fall on USA and Asia discounts

Brent and West Texas Intermediate slid for a second day as Saudi Arabia reduced its crude prices in Asia and the US, further providing evidence that the country has no intention of supporting oil prices.

January US crude lost 0.25% on Friday to $66.64 per barrel by 07:53 GMT. Prices held in a daily range between $66.83 and $66.35 a barrel. The contract settled 0.85% lower on Thursday at $66.81, three days after it reached its lowest since July 2009 and scored its biggest one-day rally since August 2012.

Meanwhile on the ICE, Brent for delivery in the same month dropped 0.27% to $69.45 a barrel, having shifted in a daily range between $69.53 and $69.12. The European crude benchmark fell 0.40% yesterday to $69.64, settling at a premium of $2.83 to WTI. The gap slightly narrowed to $2.81 on Wednesday. Futures are heading for a second weekly decline.

Saudi Arabia reduced monthly crude prices in United States and Asia, further increasing speculation that the biggest OPEC oil producer is trying to defend its market share. According to a statement released by government-owned Saudi Arabian Oil, the company will offer a $2 discount, or the lowest price in more than 14 years, in Asia.

“It seems what the Saudis want, the Saudis are going to get,” said Phil Flynn, market analyst at Price Futures. “We’re going to see prices continue to be under pressure. It is still game on.”

In addition to falling prices, which lost 18% in the last month, Iraq said it has struck a deal with Kurdish authorities to increase exports. Under the agreement OPECs second largest producer will start shipments next year, up to a maximum of 550 000 barrels a day, utilizing a pipeline owned by the Kurds. However, analysts projected than Iraq will add around 300 000 barrels per day to its export.

Libyas production has fallen by 340 000 barrels per day in November, due to a pipeline blockage. However, the country is going to resume operations in its biggest oilfield El Sharara as soon as the path is cleared, further increasing supply.

“Were heading for $60 for Brent. With nothing to stop it,” said Tony Nunan, a risk manager at Mitsubishi Corp “Its another sign that they want to maintain production levels.”

Analysts polled by Reuters projected that prices will rebound over the next two years, with Brent trading at $82.50 a barrel and WTI at $78 in 2015 as the market balances.

Crude Reserves

The Energy Information Administration reported on Wednesday that US crude oil inventories fell by 3.689 million barrels in the seven days through November 28th to 379.3 million, surpassing analysts’ expectations for a 1.75-million-barrel drop. Stockpiles at the Cushing, Oklahoma storage hub slid to 23.9 million barrels from 24.6 million a week earlier.

Refinery utilization picked up to 93.4% from 91.5% during the week through November 21st. Gasoline production decreased, while distillate fuel output increased, averaging 9.6 million and 5.0 million barrels per day, respectively.

However, this is as far as good news goes. US crude production jumped to 9.083 million barrels per day from 9.077 million, reaching the highest level on recorded weekly data dating back to January 1983. Imports slid to 7.303 million bpd, 170 000 bpd lower from a week earlier, while the four-week average of inbound shipments was 7.323 million bpd, 6.2% below year-ago levels.

Total motor gasoline inventories jumped by 2.143 million barrels to 208.6 million, exceeding analysts’ expectations for a 1.040-million jump. Distillate fuel stockpiles, which include diesel and heating oil, surged by 3.028 million barrels to 116.2 million, defying projections for a 180 000-barrel decline.

Pivot Points

According to Binary Tribune’s daily analysis, West Texas Intermediate January futures’ central pivot point is at $67.04. In case the contract breaches the first resistance level at $67.98, it may rise to $69.17. Should the second key resistance be broken, the US benchmark may attempt to advance $70.11.

If the contract manages to breach the first key support $65.85, it might come to test $64.91. With this second key support broken, movement to the downside could continue to $63.72.

Meanwhile, January Brent’s central pivot point is projected at $69.68. The contract will see its first resistance level at $70.56. If breached, it may rise and test $71.47. In case the second key resistance is broken, the European crude benchmark may attempt to advance $72.35.

If Brent manages to penetrate the first key support at $68.77, it could continue down to test $67.89. With the second support broken, downside movement may extend to $66.98 per barrel.