Crude oil trading outlook: futures retreat on stronger dollar, US GDP eyed

Both West Texas Intermediate and Brent benchmark crudes eased off yesterdays highs as the US dollar strengthened after policy makers concluded Feds bond-buying program and confirmed an interest rate hike at some point next year. OPEC comments regarding the state of the oil market, coupled with overall bullish US inventory data lent support.

On the New York Mercantile Exchange, WTI crude for settlement in December fell to a session low of $81.64 per barrel at 8:02 GMT, down 0.68% on the day. The contract rose 0.96% on Wednesday to $82.20, having earlier touched a one-week high of $82.88. Prices are up 0.8% so far this week.

Meanwhile on the ICE, Brent for delivery in the same month was down 0.64% to $86.56. Prices held in a daily range of $87.10-$86.55. The European crude benchmark gained 1.27% on Wednesday and settled at $87.12, the highest since October 13th, having earlier risen to a two-week high of $87.94. Brents premium to WTI was unchanged from yesterdays close at $4.92.

The oil market drew support on Wednesday after OPEC Secretary General Abdalla El-Badri said the recent plunge in prices did not reflect the supply-demand balance. He added that as much as half of tight oil output will be out of the market at the current price levels, while OPEC is not in a critical situation.

El-Badri said that everyone in the oil market should stop panicking because supply and demand will return in equilibrium and that OPEC members are not waging a price war and havent demanded an emergency response to prices steep decline. The groups 12 members will hold a scheduled meeting in Vienna on November 27th to discuss their production policy.

Supplies

Somewhat mixed, but overall bullish inventory data from the US also aided the market. US crude oil inventories rose less than expected last week, while refined products saw a bigger-than-projected draw, as refinery utilization rates fell and demand remained stable. A drop in crude imports offset rising domestic output.

The EIA reported that US crude oil inventories rose by 2.06 million barrels in the week ended October 24th to 379.7 million, outperforming analysts’ projections for a 3.65-million jump. Inventories at Cushing, Oklahoma, the biggest US storage hub and delivery point for Nymex-traded contracts, rose to 21.4 million barrels from 20.6 million the previous week.

Typical for the maintenance period, refineries’ utilization rate slid further and registered at 86.6%, inching down from the preceding week’s 86.7%. At the same time, US crude oil production rose to 8.970 million barrels per day from 8.934 in the preceding week, hitting the highest level since early-1983. Imports fell to 7.1 million barrels per day from 7.477 million a week earlier, while the four-week average of imports stood at little over 7.5 million bpd, down from almost 7.8 million a year earlier.

Total motor gasoline supplies fell by 1.24 million barrels to 203.1 million, the lowest in almost two years, exceeding a projected decrease of 0.9 million. Distillate fuel inventories, which include diesel and heating oil, declined by 5.3 million barrels to 120.4 million, sharply exceeding the 1.4-million anticipated decrease.

Fed meeting, strong dollar

A strong dollar, however, forced oil prices off weekly highs. The greenback rallied after the Federal Reserve, as anticipated, wrapped up its Quantitative Easing program on Wednesday, dismissing recent fears of a global economic slowdown and low inflation and focusing on a robust labor market. Although brighter economic prospects are bullish for the oil market in the long-term, a stronger dollar has an immediate drag effect.

Policy makers said the US labor market has strengthened enough to digest the end of Feds bond purchases, citing solid jobs growth and a lower unemployment rate since their last meeting in September. Non-farm payrolls have averaged 227 000 this year, headed for the best performance in 15 years, while the jobless rate fell to 5.9% in September, which is only 0.4% above the top of the range which the central bank considers full employment.

Policy makers said that interest rates could be hiked sooner than otherwise, if Feds goals of full employment and stable prices are reached faster than expected, but also stated that the opposite scenario can occur as well. Nevertheless, the Federal Open Market Committee reiterated its previous pledge to keep borrowing costs low for a “considerable time”.

The US dollar index, which measures the greenbacks performance against a basket of six major trading peers, was at the highest in almost four weeks. The December contract rose by 0.53% to 86.495 by 8:06 GMT, the highest since October 6th and close to October 3rds four-year high of 86.870. The US currency gauge surged 0.66% on Wednesday to 86.036.

Ben Le Brun, a market analyst at OptionsXpress in Sydney, said for CNBC: “Anything priced in U.S. dollars is seeing a fall since FOMC released that statement and that goes right across the commodities complex.”

A stronger greenback makes dollar-denominated commodities pricier for foreign currency holders and limits their appeal as an alternative investment.

Investors now turned their attention toward key economic data from Europe and the US to further gauge demand prospects. Due later today are unemployment data and consumer inflation from Germany, Spanish business confidence, as well as a family of sentiment indices from the Eurozone as a whole. The Commerce Departments Bureau of Economic Analysis is projected to report that the US economy grew by an annualized 3.0% in the third quarter, while initial jobless claims likely matched the previous weeks 283 000.

Pivot points

According to Binary Tribune’s daily analysis, West Texas Intermediate December futures’ central pivot point is at $82.17. In case the contract breaches the first resistance level at $82.91, it may rise to $83.61. Should the second key resistance be broken, the US benchmark may attempt to advance $84.35.

If the contract manages to breach the first key support $81.47, it might come to test $80.73. With this second key support broken, movement to the downside could continue to $80.03.

Meanwhile, December Brent’s central pivot point is projected at $87.04. The contract will see its first resistance level at $88.02. If breached, it may rise and test $88.92. In case the second key resistance is broken, the European crude benchmark may attempt to advance $89.90.

If Brent manages to penetrate the first key support at $86.14, it could continue down to test $85.16. With the second support broken, downside movement may extend to $84.26 per barrel.

How effective do you think OPECs verbal intervention will be and will a supply cut be required to ease market fears?

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