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Crude oil trading outlook: futures extend rout on ample supply, inventory data eyed

West Texas Intermediate extended its decline from the lowest settlement since end-2012 while Brent hovered near the lowest in almost four years ahead of possibly bearish US supply data that would sharpen a global supply gut.

On the New York Mercantile Exchange, November US crude fell by 0.42% to $85.38 per barrel by 7:18 GMT, having held in a daily range between $85.44 and $84.83. The contract lost 0.1% on Monday and closed at $85.74, the lowest settlement since December 2012. WTI touched $83.59 on Friday, the lowest since July 2012, and settled last week 4.4% lower.

Meanwhile, Brent for delivery in the same month slid 0.46% to $88.48 a barrel on the Intercontinental Exchange. Prices ranged between $88.64 and $88.08 during the day. The European crude grade fell to $87.74 on Monday, the lowest since December 2010, and settled 1.46% lower at $88.89, also a 46-month low. Brents premium to its US counterpart narrowed to $3.10 from Mondays close at $3.15.

Oil prices extended their rout after major OPEC producers signaled their reluctance to lose market share amid a global supply glut and instead decided to cut prices to Asian buyers. Furthermore, a Bloomberg survey of analysts ahead of a private and a government supply reports showed that US crude inventories probably increased last week.

The Energy Information Administration is expected to report on Thursday that US crude oil stockpiles probably rose by 2.5 million barrels to 364.2 million in the seven days through October 10th, the highest in two months, while gasoline and distillate fuel inventories probably shrank. Last week the EIA reported a larger-than-projected jump in crude stockpiles and a gain in the refined products categories which defied anticipations for a drop. Domestic crude production surged to a 28-year high of 8.875 million barrels per day.

Industry group the American Petroleum Institute will release its separate private report on Wednesday. However, data by the government agency is more widely tracked as API draws information from voluntary reports by operators of refineries, pipelines and bulk terminals, while the government requires reports to be filed with the EIA.

OPEC prices

OPEC output surged by 402 000 barrels per day to 30.47 million bpd in September, the group said in its monthly report on October 10th. Its top producer, Saudi Arabia, pumped 9.074 million barrels per day, up from 9.597 million in August.

Members of the Organization of the Petroleum Exporting Countries will convene in Vienna on November 27th to decide on the group’s crude quotas, with market players broadly expecting a reduction in output.

However, such an agreement might prove elusive as major producers have already signaled their reluctance to lose market share and instead responded to the bear market by cutting delivery prices to Asia.

Iraq, OPEC’s second-biggest producer, followed the example of Saudi Arabia and Iran and will sell its Basrah Light crude to Asia at the biggest discount since January 2009. This comes after the state-run National Iranian Oil Co. cut its prices for Asian customers last week, while a week earlier Saudi Arabia trimmed the cost of its Arab Light crude for Asia to the lowest since December 2008. The series of price cuts to Asia fueled speculations of a possible price war between the group’s members.

Venezuela’s foreign ministry said on October 10th that the country will seek an extraordinary OPEC meeting to discuss falling prices. Meanwhile, Saudi Arabia was reported to have privately told oil market participants it could be comfortable with a price level $80 per barrel.

Ali al-Omair, Kuwait’s oil minister, said that $76-$77 will probably be a strong area of support because that was the cost of production in the US and Russia. He said for the official Kuwait News Agency yesterday that while producers would like higher prices, there was “no room” to achieve that by cutting output. Algerias oil ministry also dismissed a possible reduction in supplies.

China trade data

Oil prices received some support yesterday from upbeat trade data from China, but only to a limited extent. China’s customs administration reported the Asian nation’s exports rose in September at the fastest pace since February 2013, buoyed by imports for processing and re-exports of goods such as the iPhone 6. Analysts had projected an annualized export growth of 11.8%, compared to the preceding month’s 9.4% jump.

Imports rose by 7.0%, the most since February, defying projections for a 2.7% contraction and compared to a 2.4% decline a month earlier. As a result, the country’s trade surplus narrowed to $31 billion from last month’s $49.83 billion, exceeding expectations for a drop to $41 billion.

Daily pivot levels

According to Binary Tribune’s daily analysis, West Texas Intermediate November futures’ central pivot point is at $85.23. In case the contract breaches the first resistance level at $86.38, it may test $87.03. Should the second key resistance be broken, the US benchmark may attempt to advance to $88.18.

If the contract manages to breach the first key support at $84.58, it might come to test $83.43. With this second key support broken, movement to the downside could continue to $82.78.

Meanwhile, November Brent’s central pivot point is projected at $88.94. The contract will see its first resistance level at $90.13. If breached, it may rise and test $91.38. In case the second key resistance is broken, the European crude benchmark may attempt to advance to $92.57.

If Brent manages to penetrate the first key support at $87.69, it could continue down to test $86.50. With the second support broken, downside movement may extend to $85.25 per barrel.

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