Crude oil trading outlook: WTI holds near two-year low, Brent steady

West Texas Intermediate crude hovered near yesterdays two-year low while Brent recovered above $85 from a four-year low after the International Energy Agency trimmed its global oil demand growth estimate for this year for the fourth consecutive month.

US November crude traded 0.27% higher at $82.06 per barrel at 6:58 GMT, having shifted in a daily range of $82.45-$81.69. The contract lost 4.55% on Tuesday, the most since November 2012, to settle at $81.84. Prices touched an intra-day low of $81.32 yesterday, the lowest since June 29th, 2012.

Meanwhile on the ICE, Brent for delivery in the same month was up 0.28% at $85.28 a barrel, having ranged between $85.58 and $85.16 during the day. The European crude benchmark shed 4.3% yesterday, the most in three years, and slid to $84.48, the lowest since end-November 2010. Brent traded at a premium of $3.22 to its US counterpart, up from yesterdays close of $3.20.

The International Energy Agency said in its monthly report that global oil consumption will climb by only 650 000 barrels per day this year, a downward revision of 250 000 bpd from its prior estimate. This was the IEA’s fourth consecutive monthly forecast revision, with projections now slashed in half from July’s 1.3-million bpd growth estimate. The Paris-based agency also said that OPEC will need to supply around 200 000 barrels per day less crude this year and in 2015.

The Paris-based agencys downward revision comes at a time of rising OPEC output, while US crude production is at its highest in almost three decades and Russians are closely trailing a post-Soviet record. Last 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 additional negative sentiment toward oil demand growth prospects. Downbeat inflation and consumer sentiment data from Europe also helped sustain the bear market.

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. However, oil ministers from Kuwait and Algeria dismissed possible output reductions.

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 that while producers would like higher prices, there was “no room” to achieve that by cutting output.

Ric Spooner, a chief strategist at CMC Markets in Sydney, said for Bloomberg: “This has been an ongoing adjustment since the news of Saudi Arabia beginning to discount prices in Asia. That changed market sentiment about when, or if, OPEC may tighten production. Investors are thinking that the OPEC response is going to be different this time around, particularly given the increased production from U.S. shale.”

US supply data

Also fanning bearish sentiment, 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.

The EIA reported on Tuesday that US shale oil production continued to grow and is set to expand by 106 000 barrels per day in November, compared to October.

Industry group the American Petroleum Institute will release its separate private data on Wednesday. Both reports are delayed by one day due to Mondays Columbus Day federal holiday.

China spark of hope

Some support was drawn by optimism a feared Chinese economic slowdown may not come into fulfillment. The Asian country will account for around 11% of global oil consumption this year, ranking it the second-biggest consumer after the US.

China’s central bank cut an interest rate it pays lenders for the second time this month yesterday. The reduction spurred speculations of broad-based monetary easing, which would help small business and public housing.

Meanwhile, a senior official at China’s economic planner said the nation’s investment growth should accelerate in the months to come as the government speeds up infrastructure projects. Upbeat trade data by Chinas customs agency also lent some aid to the markets.

On Wednesday, Chinas National Bureau of Statistics reported that consumer prices rose by 0.5% in September from a month earlier, beating projections for a 0.4% gain. Year-on-year, CPI was up 1.6%, trailing the preceding months 2.0% jump and slightly below economists 1.7% projection. Producer prices fell for the 31st consecutive month, down 1.8% in September from a year earlier.

Daily pivot points

According to Binary Tribune’s daily analysis, West Texas Intermediate November futures’ central pivot point is at $82.92. In case the contract breaches the first resistance level at $84.52, it may test $87.20. Should the second key resistance be broken, the US benchmark may attempt to advance to $88.80.

If the contract manages to breach the first key support at $80.24, it might come to test $78.64. With this second key support broken, movement to the downside could continue to $75.96.

Meanwhile, November Brent’s central pivot point is projected at $86.09. The contract will see its first resistance level at $87.69. If breached, it may rise and test $90.35. In case the second key resistance is broken, the European crude benchmark may attempt to advance to $91.95.

If Brent manages to penetrate the first key support at $83.43, it could continue down to test $81.83. With the second support broken, downside movement may extend to $79.17 per barrel.

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