Crude oil trading outlook: futures fall ahead of supply data, Goldman forecast

West Texas Intermediate crude fell for a third day ahead of supply data expected to show US crude oil inventories rose to the highest in almost four months last week. Sentiment remained dampened after Goldman Sachs cut its price forecasts for the American and European benchmark crudes amid a supply-demand imbalance.

On the New York Mercantile Exchange, WTI crude for settlement in December fell 0.04% to $80.97 per barrel by 8:06 GMT, having shifted in a daily range of $81.01-$80.36 a barrel. The contract lost 1 cent on Monday and settled at $81.00.

Meanwhile, Brent for delivery in the same month stood at $85.75 on the ICE, down 0.09%. Prices shifted between $85.85 and $85.15 during the day. The European crude benchmark fell 0.35% on Monday to $85.83. Brents premium to its US counterpart narrowed/widened to $4.78 from Mondays close at $4.83.

Oil prices extended their drop ahead of a supply report by the Energy Information Administration that may show US crude oil inventories rose to the highest in almost four months in the seven days through October 24th. Crude stockpiles are projected to have risen by 3.8 million barrels to 381.5 million, while gasoline and distillate fuel supplies probably shrank, by 700 000 and 1.45 million barrels, respectively.

Domestic crude oil production was at 8.934 million barrels per day in the week ended October 17th, close to the preceding week’s 8.951 million bpd, which was the highest since June 1985.

Industry group the American Petroleum Institute will release its separate statistics tonight. However, APIs data is deemed less popular as they are based on voluntarily provided information from operators of refineries, pipelines and bulk terminals, while the government requires reports to be filed with the EIA.

Goldman forecast

Bearish sentiment was reinforced after 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.

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 world’s oil, will convene in Vienna on November 27th to discuss the group’s production policy and decide on a possible cut in production. However, OPEC’s biggest producers, including Saudi Arabia, have signaled their reluctance to cut output and instead reduced prices to buyers.

The market hopped last week after Saudi Arabias crude supplies in September were reported to have fallen to 9.36 million barrels per day from 9.69 million in August. However, the rally was short-lived as analysts saw the move as a mere 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.

Data

Market players will also be eyeing key economic data from the US this week as an indication for the US economys recovery process. Durable goods orders are projected to have risen 0.5% in September, while the Conference Board is expected to report that consumer confidence in the US in October edged up, with the relative index rising to 87.0 from 86.0 last month.

Yesterday, the National Association of Realtors reported that US pending home sales jumped by 0.3% in September on a monthly basis, rebounding from a 1% contraction registered in August. Analysts, however, had projected a 0.5% rise.

Activity in the US services sector grew at a slower pace than anticipated, with the preliminary Markit services PMI registering at 57.3, compared to 58.9 in September. Economists had projected a slowdown to 58.0. This was the weakest rise in the sector’s activity since April. New business growth fell to a three-month low but solid rate of job creation was maintained.

In the center of investors focus will be the conclusion of FOMCs two-day meeting which begins today. Policy makers are broadly expected to end Feds bond-buying program, but are also likely to keep a dovish tone regarding the central banks interest rate hike timetable.

Pivot points

According to Binary Tribune’s daily analysis, West Texas Intermediate December futures’ central pivot point is at $80.58. In case the contract breaches the first resistance level at $81.71, it may $82.43. Should the second key resistance be broken, the US benchmark may attempt to advance to $83.56.

If the contract manages to breach the first key support at $79.86, it might come to test $78.73. With this second key support broken, movement to the downside could continue to $78.01.

Meanwhile, December Brent’s central pivot point is projected at $85.54. The contract will see its first resistance level at $86.54. If breached, it may rise and test $87.24. In case the second key resistance is broken, the European crude benchmark may attempt to advance $88.24.

If Brent manages to penetrate the first key support at $84.84, it could continue down to test $83.84. With the second support broken, downside movement may extend to $83.14 per barrel.