Crude oil trading outlook: futures rebound after fresh lows, set for weekly loss

Both West Texas Intermediate and Brent benchmark crudes rebounded from yesterdays freshly hit lows, supported by robust US employment and industrial production data, but headed for a yet another weekly loss. Bearish EIA supply data and speculations OPEC members wont cut output amid a global supply glut kept bearish sentiment in control over the market.

November US crude traded 0.19% higher at $82.86 per barrel at 7:06 GMT, having ranged between $83.52 and $82.53 during the day. The contract rose by 1.12% on Thursday to $82.70, its first gain in four days, having fallen to $79.78 in intraday trading, the lowest since June 2012. Prices are down 16% in 2014 and are headed for a third weekly loss.

Meanwhile on the ICE, Brent for settlement in December added 0.16% to trade at $85.96 a barrel. Prices varied in a narrow daily range of $86.79-$85.49. The European benchmark crude soared little over 2% on Thursday to $85.82 after it fell to a fresh four-year low of $82.93 during the day. The contract is headed for a fourth weekly losses.

Oil prices advanced on Thursday and extended their advance on Friday, buoyed by positive US data, and as banks predicted the slide might be over soon. Overall bearish supply data by the EIA, however, capped gains.

The Energy Information Administration reported on Thursday that US crude oil supplies rose by 8.92 million barrels in the week ended October 10th to 370.6 million, the highest level since July. Analysts had projected a jump of around 2.5 million barrels. Stockpiles at Cushing, Oklahoma, rose to 19.6 million barrels from 18.9 million a week earlier.

Domestic crude production surged to 8.951 million barrels per day, the highest since June 1985. Refineries operated at 88.1% of their operable capacity, down from 89.3% from a week earlier. Gasoline production jumped to 9.3 million barrels per day, while distillate fuel output dropped to 4.6 million barrels.

The EIA also reported that both major refined product categories marked sizable drops. Motor gasoline inventories decreased by 4.0 million barrels to the lowest since November 2012, while distillate fuel supplies, which include diesel and heating oil, fell by 1.5 million barrels.

Jobless data

The market drew support yesterday after the Labor Department reported that the number of Americans who filed for initial unemployment benefits in the seven days through October 11th slid by 23 000 to 264 000, the least since April 2000. The four-week average of claims, which irons out weekly volatility, dropped by 4 200 to 283 500, the lowest since June 2000.

A separate report by the Federal Reserve showed that US industrial output rose by a better-than-expected 1.0% in September from a 0.2% contraction in August, driven by a surge in utilities and a rebound in manufacturing. This was the fastest pace of expansion since November 2012 and compared to analysts’ projections for a 0.4% jump.

OPEC output

Both benchmark crudes remained on track to post a yet another weekly loss amid speculations OPEC members will challenge the US shale oil boom and will fight for market share at a time of slowing global economy and weaker demand prospects.

The International Energy Agency reported earlier this week 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 group pumped 30.47 million bpd in September, the most since August 2013.

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.

Prices were further pushed down after Saudi Arabia decided to cut its prices to Asian buyers, followed by Iran and Iraq.

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 for the official Kuwait News Agency that while producers would like higher prices, there was “no room” to achieve that by cutting output.

However, banks including BNP Paribas SA and Bank of America Corp. predict the slide might be over soon as they expected OPEC to reduce production. Meanwhile, Goldman Sachs disputed the global supply glut, saying it was yet to materialize, and noted prices have dropped too much and too early.

Jeffrey Currie, Goldman’s head of commodities research in New York, wrote in a report: “Prices have likely overshot to the downside, particularly as the lower we go the tighter the near-term balances become. This leaves us near-term constructive despite being long-term bearish.”

Downbeat inflation data from China, coupled with sluggish numbers from Europe and a contraction in September US retail sales had dragged the market down throughout the week.

Daily pivot points

According to Binary Tribune’s daily analysis, West Texas Intermediate November futures’ central pivot point is at $82.44. In case the contract breaches the first resistance level at $85.09, it may test $87.49. Should the second key resistance be broken, the US benchmark may attempt to advance to $90.14.

If the contract manages to breach the first key support at $80.04, it might come to test $77.39. With this second key support broken, movement to the downside could continue to $74.99.

Meanwhile, December Brent’s central pivot point is projected at $85.58. The contract will see its first resistance level at $88.24. If breached, it may rise and test $90.65. In case the second key resistance is broken, the European crude benchmark may attempt to advance to $93.31.

If Brent manages to penetrate the first key support at $83.17, it could continue down to test $80.51. With the second support broken, downside movement may extend to $78.10 per barrel.