Crude oil trading outlook: Brent below $86 as Goldman trims forecasts, WTI steady

West Texas Intermediate crude was little changed on Monday, while Brent fell below $86 as Goldman Sachs revised down its price forecasts in the first quarter of next year by $15 amid ample global supply.

December US crude was mostly unchanged at $81.02 per barrel on the New York Mercantile Exchange at 9:02 GMT. Prices held in a daily range of $81.29 and $80.85 a barrel. The US crude benchmark fell 1.32% on Friday to $81.01, closing the week 1.3% lower, its fourth straight weekly loss.

Meanwhile on the ICE, Brent futures for settlement in the same month slid 0.29% to $85.88 a barrel, having ranged between $86.25 and $85.73 during the day. The European benchmark crude fell 0.8% to $86.13 on Friday and marked its fifth straight weekly decline. Brent traded at a premium of $4.86 to its US counterpart, down from $5.12 at Fridays close, which was the widest in a month. Prices are down around 22% so far this year.

Goldman Sachs said on Sunday that rising output from producers outside the Organization of the Petroleum Exporting Countries, including Azerbaijan and Brazil, will result in oversupply next year.

The investment bank slashed its WTI price forecast for the first quarter of 2015 by $15 to $75 per barrel, while also trimming its prediction for Brent by the same amount to $85. Goldman expects WTI to drop to as much as $70 in the three months through June 2015 and its European counterpart to touch $80 as the oversupply is projected to be most pronounced then.

Ken Hasegawa, an energy trading manager at Newedge Group in Tokyo, said for Bloomberg: “Oil prices may decline further until we get some comments from OPEC that they will cut production.”

The US investment bank also said OPEC will lose its influence as a “first-mover swing producer” to output from US shale formations, while the Energy Department is in the process of examining how a potential lifting on the limit of US crude exports would influence oil pricing.

OPEC members, which supply around 40% of the worlds oil, will convene in Vienna on November 27th to discuss the groups production policy and decide on a possible cut in production. However, OPECs biggest producers, including Saudi Arabia, have signaled their reluctance to cut output and instead reduced prices to buyers.

The oil market rebounded on Thursday after an industry source reported that Saudi Arabia has reduced its domestic supply and exports of crude oil to 9.36 million barrels per day in September from 9.69 million in August.

However, some analysts saw the market’s response only as a short-term knee-jerk reaction, given that the kingdom’s output rose to 9.7 million barrels last month from around 9.6 million in August. The difference between output and supplies is put into storage.

“The market is worried about further weakness as Goldman Sachs said, and doubts beget doubts as there are no indications of a clear sign of recovery in demand, while supplies are no doubt in excess,” Hasegawa said.

US crude supplies, data

Last weeks bearish supply data from the US kept the market pressured, although upbeat economic data sounded a positive note for demand prospects.

US crude oil inventories jumped by 7.11 million barrels to 377.7 million in the week ended October 17th, the highest inventory level since July.

The larger-than-projected build came amid a typical for the maintenance period lower utilization rate, while domestic crude production stood near the highest in almost three decades.

Refineries operated at 86.7% of their operable capacity, down from 88.1% a week earlier, while US crude output was at 8.934 million barrels per day, close to last week’s 8.951 million bpd, which was the highest since June 1985.

The report also showed that total motor gasoline supplies fell by 1.3 million barrels to 204.4 million, largely in line with analysts’ projections. Distillate fuel stockpiles, which include diesel and heating oil, rose by 1.05 million barrels to 125.7 million, confounding projections for a 1.5-million drop.

However, mostly better-than-expected housing data from the US, coupled with upbeat employment numbers, provided some support. On Monday, the National Association of Realtors is expected to report that US pending home sales jumped by 0.5% in September on a monthly basis, rebounding from a 1% contraction registered in August.

Market players also eyed FOMCs two-day policy meeting this week, with broad expectations calling for the conclusion of the central banks Quantitative Easing program. Investors will also be looking for clues of when policy makers may begin to raise interest rates.

Pivot points

According to Binary Tribune’s daily analysis, West Texas Intermediate December futures’ central pivot point is at $81.11. In case the contract breaches the first resistance level at $81.85, it may test $82.70. Should the second key resistance be broken, the US benchmark may attempt to advance to $83.44.

If the contract manages to breach the first key support at $80.26, it might come to test $79.52. With this second key support broken, movement to the downside could continue to $78.67.

Meanwhile, December Brent’s central pivot point is projected at $86.07. The contract will see its first resistance level at $86.84. If breached, it may rise and test $87.56. In case the second key resistance is broken, the European crude benchmark may attempt to advance $88.33.

If Brent manages to penetrate the first key support at $85.35, it could continue down to test $84.58. With the second support broken, downside movement may extend to $83.86 per barrel.