Crude oil trading outlook: WTI and Brent futures extend slide

WTI and Brent futures were in the red during early trade in Europe today, as investors price in a hefty supply build in the US and a stronger dollar.

WTI futures for October delivery on the New York Mercantile Exchange traded at $93.85 per barrel at 6:30 GMT today, down 0.60% for the day, while prices had ranged from $93.62 to $94.06 per barrel. The US benchmark settled Wednesday 0.5% lower, after adding ~3% for the previous two sessions.

Meanwhile on the ICE in London, November Brent stood at $98.41 per barrel, down 0.57%, daily prices between $98.28 and $99.69 per barrel. The contract’s premium to November WTI widened to $5.71. The European brand has added ~1% over the past three days.

“Theres nothing to push [oil] higher. The dollar is getting stronger and the overall market is weak with high inventories,” Tony Nunan, oil risk manager at Mitsubishi in Tokyo, said for Reuters.

US inventories

The EIA report, which covers the week through September 12, revealed US crude stocks had added 3.7 million barrels, in comparison with a 1.5m-1.8m draw forecasts. The result also largely matches the American Petroleum Institute (API)’s reading of 3.3m gain. The build is only the third positive figure in 16 weeks.

Production of crude logged a slight increase to 8.8m barrels daily, which is almost 13% more than a year ago. Meanwhile, net imports of crude had increased some 7% since the previous week to 7.7m barrels per day, while also clocking ahead of year-ago levels by ~3%. The increase of imports is the main contributor to the significant crude stocks increase.

Stocks at Cushing, Oklahoma, the delivery point for the NYMEX West Texas Intermediate contract and the largest hub in the US, were slightly lower at 20m barrels.

Gasoline stocks were drawn by 1.6m barrels, which beat expectations of a 0.4m draw. Meanwhile, distillates, a category which includes diesel and heating fuel, were up 0.3m barrels.

Refineries operated at 93.0% of their operable capacity, slightly lower than the four-week average, though still a massive ~5% above the rate of two years ago. Gasoline production edged up to 9.2m barrels per day, while distillates output was slightly lower to average 4.9m.

“We were supposed to see heavy maintenance,” Carl Larry, analyst at Oil Outlooks & Opinions, said for The Wall Street Journal. But “we havent seen [utilization levels] budge. Nobodys slowing up.”

Meanwhile, a boost to a four-year high for the US dollar weighed heavily on dollar-denominated commodities, such as oil. The surge was prompted by a more hawkish Fed after the September Federal Open Market Committee (FOMC) meeting. The monetary-policy body of the Fed decided to, as expected, cut monthly assets purchases by another $10bn and keep the benchmark interest rate at 0.25%. The Feds projection for next year was changed, however, with still a “considerable time” between the QE program closing and rates rising. The end-year rate target was raised to 1.375% from the previous of 1.125%. The move translated into a stronger dollar, which weighed down on oil, adding to pressure from ample US supplies.

Opec supply

Traders have been speculating about a OPEC possibly shutting spare production in order to limit global supply and support crude prices against the recent slump. OPEC oil ministers, however, soon dispelled much of the speculation, saying that price fluctuations are normal and that no action is needed, adding that they believe prices will rebound as winter heating demand kicks in.

Saudi Arabia cut production by about 0.4m barrels daily in August, though it has had little effect on exports, and the group said it could curb production to 29.5m barrels daily in 2015, bringing it in line with expectations of market demand for OPEC oil.

“Weve come down so far that now with talks of OPEC cutting supply, I think we are pretty close to the bottom and the market could be moving sideways from here,” Nunan added for Reuters.