Crude oil trading outlook: futures gain as China demand rises, ample supply weighs

Both West Texas Intermediate and Brent benchmark crudes rose in early European trading on Tuesday as investors weighed rising Chinese oil demand against ample supply and concerns of slowing global economic growth. Expectations for a drop in US refined product supplies also lent some support.

On the New York Mercantile Exchange, WTI crude for delivery in December traded at $82.40 per barrel at 7:17 GMT, up 0.65% on the day. Prices held in a daily range of $82.44-$81.77 a barrel. The US crude benchmark fell by 0.18% on Monday to $81.91, snapping two days of advances.

Brent futures for settlement in the same month were up 0.59% at $85.90 a barrel, having ranged between $85.93 and $85.10 during the day. The contract fell 0.9% on Monday to $85.40 and traded at a premium of $3.50 to its US counterpart, compared to Mondays close at $3.49.

Oil prices drew support on Tuesday after Chinas National Bureau of Statistics reported a jump in Chinese oil demand. Implied oil consumption rose by 6.2% on a monthly basis in September to 10.3 million barrels per day, the highest since February, as imports and throughput rose to the second-highest this year.

Refiners processed around 42 million tons of crude oil last month, marking a 9.1% annualized rise, the biggest jump since June 2013.

Also fanning positive sentiment, Chinas industrial production expanded by 8.0% in September from a year earlier, exceeding analysts projections for a 7.5% growth from the preceding months 6.9% annualized expansion which was the slowest in more than five years. With industrial output steadily growing, Chinese crude oil demand is expected to continuously rise, which however is not anticipated to play a major role in the short-term given the ample global supplies.

However, despite the upbeat crude demand, a slowdown in Chinas Q3 GDP growth below the governments officially targeted 7.5% rate of expansion refueled fears of a stalling global economy. The Asian economy grew by an annualized 7.3% in the third quarter, the lowest since Q1 2009, compared to 7.5% in the second quarter. Although the reading beat broad analysts expectations for a slowdown to 7.2%, it still sparked expectations the government will introduce additional stimulus measures to spur growth.

On a quarterly basis, the worlds second-biggest economy expanded by a seasonally-adjusted 1.9% from the previous three months, topping analysts estimates for 1.8%. Retail sales rose by 11.6% from a year earlier in September, slightly below economists consensus forecast for 11.8%.

Another weak point was fixed-asset investment excluding rural households which rose an annualized 16.1% in the first nine months of the year, the slowest since 2001. This trailed projections for 16.3% and the January-Augusts growth of 16.5%.

US crude supplies

The market also drew some support ahead of US supply data that is expected to show a drop in stockpiles of refined products. According to a Bloomberg survey of analysts, motor gasoline inventories are projected to have fallen by 1.45 million barrels in the week ended October 17th to 204.2 million, the lowest in two years. Distillate fuel supplies likely slid by 1.5 million barrels, while crude oil stockpiles are expected to have risen by 3 million barrels to 373.6 million.

The American Petroleum Institute will release its separate private data at 20:30 GMT.

OPEC meeting

Market players watched closely for any shift in OPECs production policy but its biggest producers have indicated their reluctance to lower output and lose market share and instead responded with price cuts.

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.

The 12 members are set to meet in Vienna on November 27th and any cut in output before that is rather unlikely.

David Lennox, a resource analyst at Fat Prophets in Sydney, said for Bloomberg: “If OPEC doesn’t cut, the market will go lower. The U.S. won’t stop production. It’s the supply-demand scenario affecting the market.”

However, oil prices dropping below the key $80 level could affect US shale output because, according to analysts at Bernstein Research, production may become uneconomical beneath that price level.

Pivot points

According to Binary Tribune’s daily analysis, West Texas Intermediate December futures’ central pivot point is at $81.81. In case the contract breaches the first resistance level at $82.83, it may test $83.74. Should the second key resistance be broken, the US benchmark may attempt to advance to $84.76.

If the contract manages to breach the first key support at $80.90, it might come to test $79.88. With this second key support broken, movement to the downside could continue to $78.97.

Meanwhile, December Brent’s central pivot point is projected at $85.50. The contract will see its first resistance level at $86.60. If breached, it may rise and test $87.79. In case the second key resistance is broken, the European crude benchmark may attempt to advance to $88.89.

If Brent manages to penetrate the first key support at $84.31, it could continue down to test $83.21. With the second support broken, downside movement may extend to $82.02 per barrel.