Crude oil trading outlook: WTI futures edge up to pare weekly losses, Brent set for big drop

WTI futures were higher during early trade in Europe today, reversing losses from earlier this week, while Brent, the global benchmark, was on track to settle the week at the lowest level in more than two years.

WTI futures for October delivery on the New York Mercantile Exchange traded at $93.30 per barrel at 7:18 GMT today, up 0.51% for the day and paring earlier losses this week. Prices ranged from $92.79 to $93.42 per barrel, while yesterday the contract reached a 16-month low at $91.22.

Meanwhile on the ICE in London, October Brent stood at $98.20 per barrel, up 0.12%, daily prices between $97.73 and $98.30 per barrel. October Brent’s premium to its US counterpart narrowed to $4.90. The European contract is on track to log a ~2.5% weekly drop, reaching a 26-month low of $97.60 yesterday.

“I believe Brent is oversold which should warrant buy-back. Im a little bullish on oil and it could bounce back to $100 next week,” Tetsu Emori, a commodity fund manager at Tokyos Astmax Co Ltd, said for Reuters. “Investors are discounting the geopolitical risks in the market, but we see such risks.”

Contracts were supported by upbeat data from China, the worlds second-top oil consumer, which logged almost double the amount of new loans in August, paring some of the negative readings from this past week.

Now investors look to tomorrows fixed asset investment, retail sales and industrial production figures for China.

Prices have been grinding lower this week, as bearish outlooks on global demand spread ahead of the International Energy Agencys monthly report. The agency, which consults developed nations on oil matters, cuts its forecasts for oil demand growth for this year and 2015 by 150 000 and 100 000, respectively, to 900 000 in 2014 and 1.2m next year.

Meanwhile, Saudi Arabia said it is not planning a cut in output to accommodate a higher global price for crude, dispelling speculation that such a move will come to support prices soon. The country did, however, report a slowdown in production for August, though growing exports from Iraq and Libya more than accounted for it.

OPEC also lowered the projected volume of crude it would market next year, as global demand was seen slowing, supporting IEAs outlook.

“The recent slowdown in demand growth is nothing short of remarkable,” the agency said.

IEAs forecast cut comes as a separate US outlook proposed growing supplies, further pressuring crude. The Energy Departments statistics arm, the Energy Information Administration, said oil prices next year will be lower as US crude output reaches a 45-year peak. Meanwhile, the US weekly oil inventory build painted an even gloomier picture, pressuring crude deeper into bear territory.

US supplies

The EIA report, which covers the week through September 5, revealed crude inventories dropped 1 million barrels, largely meeting expectations of 1.1m-1.5m draw. The decrease extends the series of declining US stocks to an 11th out of 12 weeks.

Production of crude logged a minor drop to 8.6 million barrels per day, up 11% on an annual basis. Net imports last week were 7.2m, down 9% on an annual basis, outlining the shift towards domestic production, in light of booming shale production in the US.

“There’s a supply issue, particularly in the US,” Michael McCarthy, a chief strategist at CMC Markets in Sydney, said for Bloomberg. “There are clear questions around demand growth for oil over the next one to two years.”

Gasoline stocks surprisingly added 2.4m barrels, compared with expectations of no change or slight decrease, signaling the US is oversupplied with the fuel, pressuring crude lower. Meanwhile, distillates, a category which includes diesel and heating fuel, were up almost 4.1m barrels, compared with forecasts of a 0.6m-1m gain.

Refineries bumped up production, EIA logging a weekly refinery utilization rate of 93.9%, 1.5% up on annual basis and almost 10% more than two years ago. Gasoline production, however, was actually some 5% lower than a week ago at ~9m barrels daily, while distillates output averaged 5.1m, little changed from a week ago.

“Refining margins are still good, so theyre going to keep producing as long as they can,” said Carl Larry, analyst at Oil Outlooks & Opinions.

Technical support and resistance levels

According to Binary Tribune’s daily analysis for Monday, West Texas Intermediate October futures’ central pivot point is at $92.23. In case the contract breaches the first resistance level at $94.04, it will probably continue up to test $95.24. Should the second key resistance be broken, the US benchmark will most likely attempt to advance to $97.05.

If the contract manages to breach the first key support at $91.03, it will probably continue to drop and test $89.22. With this second key support broken, movement to the downside will probably continue to $88.02.

Meanwhile, October Brent’s central pivot point is projected at $97.76. The contract will see its first resistance level at $98.81. If breached, it will probably rise and test $99.53. In case the second key resistance is broken, the European crude benchmark will probably attempt to advance to $100.58.

If Brent manages to penetrate the first key support at $97.04, it will likely continue down to test $95.99. With the second support broken, downside movement may extend to $95.27 per barrel.