Crude oil trading outlook: WTI and Brent futures extend slump

WTI and Brent futures slid further into the red during morning trade in Europe today, widening losses amid worries on steady Saudi output outlooks. A bullish EIA report was not enough to keep crude in the black Wednesday, with supply worries erasing more than 2% off crude late in the session.

WTI futures for November delivery on the New York Mercantile Exchange traded at $90.18 per barrel at 7:28 GMT today, down 0.61% for the day. Prices had ranged from a six-month low at $90.11 to $91.00 per barrel. The US benchmark reversed all gains to close for a 0.5% loss Wednesday.

Meanwhile on the ICE in London, November Brent stood at $93.55 per barrel, down 0.65%, with prices between a two-year trough at $93.38 and $94.37 per barrel. The contract’s premium to its US counterpart widened to $3.37, near the lowest in a year. The global benchmark closed Wednesdays session for a 0.5% loss.

Crude contracts failed to hold on to sizable gains yesterday, tumbling some 2% on news that Saudi Arabia, the worlds top crude exporter, cut the list price of its crude for Asia, Europe and North America. The news caught the market off guard, erasing the positive sentiment from a bullish Energy Information Administration (EIA) weekly US oil report.

“That [price cut] tells the market they [the Saudis] are not going to cut [production]”, John Kilduff, founding partner of Again Capital in New York, said for The Wall Street Journal. “That was a signal to the market that the oversupplied conditions are going to continue for a while.”

Some market analysts had expected Saudi Arabia to cut output, and lift global crude prices, to accommodate smaller OPEC members, though at the cost of its own market share. The Kingdom is the only oil exporter with sufficient production with quick-shut capabilities, which makes possible significant, and timely, production cuts, or increases, which could significantly impact global prices.

The price cut, however, indicates that Saudi Arabia is not keen on suffering to keep other OPEC members afloat, and global prices will probably have to dive deeper to stoke a reaction from the Kingdom, pressuring crude contracts.

Earlier on Wednesday, markets were encouraged by bullish EIA data.

US inventories

The EIA report, which covers the week through September 26th, revealed crude stocks had been drawn by 1.4 million barrels, meeting expectations and logging the 15th out of 18 weeks of draws.

Production of crude logged a minor decrease from last week’s 28-year high to 8.84 million barrels per day. Meanwhile, imports of crude increased by 0.4m b/d to about 6.9m. The previous report read for a 16% drop of inbound shipments on a weekly basis.

Stocks at Cushing, Oklahoma, the delivery point for the NYMEX West Texas Intermediate contract and the largest hub in the US, were slightly higher at 20.5m, while hubs at the gulf coast dropped to 184.5m.

Gasoline stocks were down 1.8m, beating expectations of a 0.6m draw, while distillates, a category which includes diesel and heating fuel, fell by 2.9m, in comparison with analysts expecting no change.

Refineries pared back production as maintenance season kicks in, for an operating capacity of 89.8%, almost 4% below last week’s figure. Gasoline production was logged at 9.0m b/d, slightly lower than last week, while distillates output averaged 4.9m b/d, same as last week.

Previously, on Tuesday crude crashed, logging the worst day in almost two years, with both benchmarks closing for ~3% loss. Analysts agree that a complex of factors contributed to the slump. A four-year strong dollar, weakening demand outlooks in Europe and China, Mexico bulk-trades, rising output from OPEC and technical covering at the end of the quarter were all cited as possible factors.

China, Europe, and US, manufacturing PMI figures were all logged below expectations, though ISM again recorded a significant month of growth for the worlds top economy. The factory sector is a leading oil demand gauge, as manufactured goods need transportation and factories themselves require a significant amount of fuel or power. In China especially, the factory sector is a massive part of the economy, accounting for more than 40% of GDP, while China itself accounts for about 12% of global crude demand. The US and Eurozone consumer about 21% and 11% of all oil, respectively.

Technical support and resistance levels

According to Binary Tribune’s daily analysis for Monday, West Texas Intermediate November futures’ central pivot point is at $91.39. In case the contract breaches the first resistance level at $92.30, it will probably continue up to test $93.88. Should the second key resistance be broken, the US benchmark will most likely attempt to advance to $94.79.

If the contract manages to breach the first key support at $89.81, it will probably continue to drop and test $88.90. With this second key support broken, movement to the downside will probably continue to $87.32.

Meanwhile, November Brent’s central pivot point is projected at $94.72. The contract will see its first resistance level at $95.67. If breached, it will probably rise and test $97.17. In case the second key resistance is broken, the European crude benchmark will probably attempt to advance to $98.12.

If Brent manages to penetrate the first key support at $93.22, it will likely continue down to test $92.27. With the second support broken, downside movement may extend to $90.77 per barrel.

At what prices do you think the Saudis will intervene?

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