Crude oil trading outlook: futures remain near multi-month lows amid strong dollar, ample supply

Both West Texas Intermediate and Brent crude benchmarks were mostly unchanged on Monday, hovering near the previous weeks multi-month lows amid speculations that OPEC wont cut supply yet and as the US dollar remained near the highest level in four years.

WTI futures for settlement in November were up 0.36% by 7:22 GMT to trade at $90.06 per barrel on the New York Mercantile Exchange, having shifted in a daily range between $90.12 and $89.39 a barrel. The US crude benchmark fell to a 1-1/2-year low of $88.18 on Thursday and settled last week 4% lower, reversing gains in the previous two five-day periods.

Meanwhile on the ICE, Brent for settlement in the same month was up 0.09% at $92.39 per barrel after ranging between $92.45 and $91.78 for the day. The European crude benchmark fell to a 27-month low of $91.48 on Friday and closed at $92.31, the lowest settlement since June 2012. Prices slid almost 5% last week, the most since April 2013, marking their fourth weekly decline in five. The contract is down 17% this year. Brent traded at a premium of $2.33 to its US counterpart, down from $2.57 on Fridays close.

Crude prices remained pressured to the downside, despite the lack of deteriorating fundamentals, by a strong US dollar. The greenback rallied to a four-year high against a basket of major trading peers on Friday after upbeat US jobless data spurred speculations the Federal Reserve might raise interest rates by mid-2015 or earlier.

The US Labor Department reported on Friday that US employers added 248 000 new jobs in September, compared to expectations of a 215 000 reading, while the unemployment rate was logged at a six-year trough of 5.9%, also beating expectations.

The US dollar index for settlement in December was down 0.23% at 86.620 by 7:26 GMT on Monday, having ranged between 86.845 and 86.615 during the day. The US currency gauge surged to a four-year high of 86.870 on Friday and settled the day 1.3% higher at 86.823.

OPEC output

Crude prices were additionally pressured by speculations that OPEC, which supplies around 40% of the worlds oil, will most likely leave its production levels intact before the groups next scheduled meeting, due on November 27th, even though supply exceeds demand. According to Bloomberg analysts estimates, OPEC pumped 30.935 million barrels per day in September, the most since August 2013.

Markets were caught off-guard after Saudi Arabia, the worlds top crude exporter, cut the list price of its crude for Asia, Europe and North America. Broad expectations had called for a reduction in its output, which would lift prices and accommodate smaller OPEC members at the cost of its own market share. Saudi Arabia is the only oil exporter with sufficient production with quick-shut capabilities, which makes possible significant, and timely, production cuts or increases, which could notably impact global prices.

Morgan Stanley analysts said in a note on Monday: “OPEC remains optimistic that improving crude demand in the fourth quarter, which we expect as well, will drive prices higher. We would be surprised to see any large reduction in production prior to the November OPEC meeting.”

At the same time, US crude production remains at the highest level in more than two decades and is expected to reach even greater levels in the near future. The Energy Information Administration reported on October 1st that domestic crude production slightly eased to 8.84 million barrels per day in the week ended September 26th, down from the preceding weeks 8.867 million bpd which was the highest since 1986.

Furthermore, the EIA expects US crude output to jump to a 45-year high of 9.53 million bpd in 2015. At the same time, the International Energy Agency trimmed its global demand growth outlook for this year and the next, citing a weakening global economy.

“There’s need for strong production cuts, and the only country that can deliver that cut is Saudi Arabia,” Carsten Fritsch, commodity analyst at Commerzbank AG in Frankfurt, said for The Wall Street Journal. “A price drop below $90, maybe $85, will cause alarm bells.”

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. Analysts expect Brent to gain support at around $90 – the breakeven point for Saudi Arabia to maintain its current levels of public spending, and a major psychological support level. In case the dollar retains its gains, we could see the European benchmark dropping to $90 in the short-term.

Pivot points

According to Binary Tribune’s daily analysis, West Texas Intermediate November futures’ central pivot point is at $90.30. In case the contract breaches the first resistance level at $91.23, it will probably continue up to test $92.73. Should the second key resistance be broken, the US benchmark will most likely attempt to advance to $93.66.

If the contract manages to breach the first key support at $88.80, it will probably continue to drop and test $87.87. With this second key support broken, movement to the downside will probably continue to $86.37.

In weekly terms, the central pivot point is at $90.94. The three key resistance levels are as follows: R1 – $93.70, R2 – $97.66, R3 – $100.42. The three key support levels are: S1 – $86.98, S2 – $84.22, S3 – $80.26.

Meanwhile, November Brent’s central pivot point is projected at $92.62. The contract will see its first resistance level at $93.75. If breached, it will probably rise and test $95.20. In case the second key resistance is broken, the European crude benchmark will probably attempt to advance to $96.33.

If Brent manages to penetrate the first key support at $91.17, it will likely continue down to test $90.04. With the second support broken, downside movement may extend to $88.59 per barrel.

In weekly terms, the central pivot point is at $93.86. The three key resistance levels are as follows: R1 – $96.25, R2 – $100.18, R3 – $102.57. The three key support levels are: S1 – $89.93, S2 – $87.54, S3 – $83.61.