Crude oil trading outlook: WTI and Brent futures turn lower after rally

WTI and Brent futures slid back into the red during early trade in Europe today, after reversing the downturn late on Wednesday to close in the black, with support by a drop in US crude stocks. Air strikes on ISIS refineries in Syria failed to widen the risk premium, as ample supplies are the theme of the day.

WTI futures for November delivery on the New York Mercantile Exchange traded at $92.67 per barrel at 6:45 GMT today, down 0.14% for the day. Prices had ranged from $92.60 to $92.99 per barrel. The US benchmark added 1.4% on Wednesday.

Meanwhile on the ICE in London, November Brent stood at $96.76 per barrel, down 0.20%, with prices between $96.69 and $97.07 per barrel. The contract’s premium its US counterpart narrowed to $4.09. The contract also reached a 2-year bottom at $95.60 yesterday, though it soon reversed losses to close the session for a 0.10% gain.

“We expect WTI to drop for the rest of today as the US crude stockpile drop should be a short-term effect,” Phillips Futures wrote in a note cited by Reuters. “We need to be wary of the changes in U.S. crude imports as this may fundamentally cause the WTI-Brent spread to narrow.”

Crude contracts were offered significant support yesterday, as the US reported draws at crude inventories, signaling demand in the worlds top consumer could be picking up.

US inventories

The EIA report, which covers the week through September 19th, revealed crude stocks had lost 4.3 million barrels, as compared with expectations of a 0.7m-1m draw. The result was, however, somewhat priced in, after the industry-funded American Petroleum Institute (API) had reported its separate readings for a 6.5m draw yesterday. The draw also marks the 14th weekly decrease out of 17, and is the biggest weekly decrease since mid-July.

Production of crude logged a minor increase to set a new highest level for the past 28 years at 8.867 million barrels per day. Meanwhile, imports of crude had dropped 16% on a weekly basis, after a surprise 7% increase of inbound shipments produced a crude glut in the US last week.

Stocks at Cushing, Oklahoma, the delivery point for the NYMEX West Texas Intermediate contract and the largest hub in the US, were little changed at 20.2 million barrels.

Gasoline stocks were down 0.4m, while distillates, a category which includes diesel and heating fuel, added 0.8 million barrels, largely meeting expectations.

Refineries operated at 93.4%, and gasoline production was slightly lower at 9.2m b/d, while distillates output averaged 4.9m b/d, same as last week.

Meanwhile, US-led air strikes on Islamic State (IS, ISIS, ISIL) targets in Syria continued last night, with the coalition targeting the insurgents refineries, in a bid to limit the groups funding capabilities.

Middle East, OPEC

The broadening of action against ISIS was thought to widen the risk premium in crude prices, but it has so far failed to spook markets. Investors seem to regard the actions as positive for the security of the region.

Meanwhile, Iraq, OPECs second-top oil exporter and the most-hurt by ISIS country, actually logs increasing outbound shipments. Libya, also an OPEC member, also clocks soaring production after operations at its largest oilfield were resumed.

The growth in OPEC production adds to ample global supplies, which weighed on prices recently. Earlier this month, both the International Energy Agency (IEA), which consults developed nations on oil, and OPEC lowered projections of crude demand next year.

The forecasts produced speculation of an imminent OPEC output cut, as traders expect the cartel to move in the defense of the key $100 per barrel price level.

OPEC official moved to dispel speculation about a cut, but the group did lower its marketable oil expectations for 2015, signaling a decrease in production could follow as to meet market demand.

“Geopolitical risk is a factor in the markets mind… but the market is dominated by supply,” Ric Spooner, chief market analyst at CMC Markets, said for Reuters. “Broadly speaking, there is potential for Brent to get down towards $90 a barrel before we were to start seeing OPEC doing something a bit more concrete about reducing supplies to try and defend price levels.”

In a note released Wednesday, Citigroup lowered its 2015 forecast for WTI prices by $10 a barrel to $89.50, and by $7.50 a barrel to $97.50 for Brent.

Technical support and resistance levels

According to Binary Tribune’s daily analysis for Monday, West Texas Intermediate November futures’ central pivot point is at $92.41. In case the contract breaches the first resistance level at $93.68, it will probably continue up to test $94.55. Should the second key resistance be broken, the US benchmark will most likely attempt to advance to $95.82.

If the contract manages to breach the first key support at $91.54, it will probably continue to drop and test $90.27. With this second key support broken, movement to the downside will probably continue to $89.40.

Meanwhile, November Brent’s central pivot point is projected at $96.63. The contract will see its first resistance level at $97.65. If breached, it will probably rise and test $98.36. In case the second key resistance is broken, the European crude benchmark will probably attempt to advance to $99.38.

If Brent manages to penetrate the first key support at $95.92, it will likely continue down to test $94.90. With the second support broken, downside movement may extend to $94.19 per barrel.