Crude oil trading outlook: futures rise on weaker dollar, ample supply weighs

Both West Texas Intermediate and Brent crudes marked minor daily gains, supported by a weaker dollar, but still hovered near yesterdays multi-month lows following bearish supply data by the Energy Information Administration.

On the New York Mercantile Exchange, US November crude rose by 0.53% to $87.77 per barrel by 6:54 GMT, having ranged between $87.88 and $87.43 during the day. Prices dropped to $86.83 earlier on Wednesday, the lowest since April 2013, and settled 1.73% lower at $87.31.

On the ICE, Brent crude for delivery in the same month was up 0.38% to trade at $91.73 a barrel. Prices shifted in a daily range of $91.80-$91.40. The contract fell to $90.57 on Wednesday, the weakest level since June 2012, before settling the day 0.79% lower at $91.38. The contract slid almost 5% last week, the most since April 2013, marking its fourth weekly decline in five. Brent’s premium to its US counterpart narrowed to $3.96 from Wednesday’s close at $4.07.

The Energy Information Administration reported on Wednesday that US crude oil inventories expanded by 5.01 million barrels in the week ended October 3rd to 361.7 million. The reading was in line with a 5.1-million jump reported by the American Petroleum Institute on Tuesday and trailed analysts’ projections for a more moderate 2-million increase. Supplies at Cushing, Oklahoma, the biggest US storage hub and delivery point for NYMEX-traded contracts, slid to 18.9 million barrels from 20.5 million in the preceding period.

Meanwhile, domestic crude production surged to 8.875 million barrels per day, the highest since 1986, up from 8.837 million bpd the previous week, while net imports increased to 7.29 million bpd from 6.86 million.

The government agency also reported that distillate fuel inventories, which include diesel and heating oil, rose by 439 000 barrels to 126.1 million, defying analysts’ forecasts for a 1.25-million drop. Gasoline stockpiles also rose, by 1.18 million barrels, to 209.7 million, mismatching expectations for a decline of 500 000 barrels.

Earlier in the week, the International Monetary Fund trimmed its global economic growth forecast to 3.8% next year, down from the previously expected in July 4.0%, fanning negative sentiment toward oil demand growth prospects. Global oil consumption is expected to jump by 1.3% to 93.8 million bpd next year, trimming its previous projection by 165 000 barrels per day.

Weaker dollar

Oil prices, among other dollar-denominated commodities, benefited from a weaker greenback which retreated further from a four-year high touched last Friday. Yesterdays minutes from Feds September 16-17 meeting revealed that policy makers worried that slowing global growth and a strong dollar posed risks to the US economys recovery, and kept a dovish tone. Central bankers decided to maintain a pledge to keep interest rates at rock bottom for a “considerable time”.

The US dollar index, a gauge of the greenbacks strength against a basket of six major peers, fell to a two-week low following the dollar-bearish news. The December contract stood at 85.190 at 6:54 GMT, down 0.25% on the day, having fallen earlier in the session to 85.155, the lowest since September 24th. A weaker dollar makes commodities priced in it cheaper for foreign currency holders and boosts their appeal as an alternative investment.

“Some participants saw the current forward guidance as appropriate in light of risk-management considerations, which suggested that it would be prudent to err on the side of patience while awaiting further evidence of sustained progress toward the committee’s goals,” Fed minutes showed.

Geopolitics

Although oil has shed most of its geopolitical risk premium, investors kept a close eye on developments in the Middle East. Islamic State insurgents renewed their assault on the town of Kobane, close to the Syrian-Turkish border, as the US and its partners conducted airstrikes against IS targets in Syria.

However, both the US and UK have warned that assistance by air will not prevent alone IS fighters from seizing the Syrian town. A Pentagon representative said the US and allies were doing everything they can from the air, but there were limits to what the campaign could achieve.

A Kurdish leader in Kobane told Reuters that IS militants had entered parts of the city. Capturing the town could give Islamic State full control of a long stretch of the Syrian-Turkish border. During the three weeks of fighting, more than 400 people were killed, while more than 160 000 Syrians have fled over the border to Turkey.

Paving the way for the return of more Iranian oil on the international markets, top diplomats from the US, EU and Iran are meeting next week in Vienna to try to strike a deal over the Islamic Republics nuclear program before a November 24th deadline.

Daily pivot points

According to Binary Tribune’s daily analysis, West Texas Intermediate November futures’ central pivot point is at $87.59. In case the contract breaches the first resistance level at $88.35, it will probably continue up to test $89.39. Should the second key resistance be broken, the US benchmark will most likely attempt to advance to $90.15.

If the contract manages to breach the first key support at $86.55, it will probably continue to drop and test $85.79. With this second key support broken, movement to the downside will probably continue to $84.75.

Meanwhile, November Brent’s central pivot point is projected at $91.28. The contract will see its first resistance level at $91.99. If breached, it will probably rise and test $92.60. In case the second key resistance is broken, the European crude benchmark will probably attempt to advance to $93.31.

If Brent manages to penetrate the first key support at $90.67, it will likely continue down to test $89.96. With the second support broken, downside movement may extend to $89.35 per barrel.