Crude oil trading outlook: WTI hits lowest in three years on Saudi price cut, Brent drops to four-year low

Both West Texas Intermediate and Brent benchmark crudes fell to the lowest in three and four years, respectively, after top OPEC producer Saudi Arabia cut its sales price to the United States, in spite of raising prices to Asia and Europe. A stronger dollar and expectations for a yet another build in US crude oil inventories also weighed on the market.

December US crude fell 2.87% to $76.52 per barrel by 12:34 GMT on the New York Mercantile Exchange, having earlier declined to $75.84 a barrel, the lowest since October 4th, 2014. The contract slid 2.19% on Monday to $78.78 a barrel, its third straight daily retreat. Prices dropped almost 12% last month, the biggest such decline since May 2012.

Meanwhile on the ICE, Brent for settlement in the same month dropped 2.88% to $82.34 per barrel, having earlier fallen to $82.08 a barrel, the weakest since October 2010. The European benchmark crude declined 1.26% on Monday to $84.78 a barrel. Prices plunged 9.3% in October. Brent traded at a premium of $5.82 to its US counterpart, down from Monday’s close at $6.00.

The oil market reinforced its bearish stance after top OPEC producer and exporter Saudi Arabia reduced the premium of Arab Light to U.S. Gulf Coast benchmarks by $0.45 per barrel to the lowest this year. Meanwhile, the kingdom increased its December sales prices, relative to benchmarks, to Asia and Europe.

Although the news were overall mixed, due to the higher price to Asia and Europe, the markets reaction clearly reflected, and exacerbated, the overall bearish sentiment which has been dominant in the recent weeks. Some analysts saw Saudi Arabias move as an intention to fight for US market share by pressuring US shale producers.

Ole Sloth Hansen, an analyst at Saxo Bank A/S in Copenhagen, said for Bloomberg: “Saudi Aramco have once again shown their ability to move the market. The focus for OPEC is really the U.S. market where the biggest source of new supply is coming from.”

OPECs 12 member countries will convene in Vienna on November 27th to discuss the groups production policy. However, OPEC Secretary General Abdullah al-Badri said last week he sees little change to the group’s 2015 output target and that there is no need to panic at the recent slump in prices, reinforcing indications that member countries are in no hurry to cut output.

Strong dollar

A strong dollar continued to weigh on the market. The US dollar rallied to the highest in more than four years against a basket of six major trading partners, boosted by a weaker yen and as the Federal Reserve wrapped up its Quantitative Easing program.

A continuing series of upbeat US economic data also helped push the greenback higher, although the strong figures also brightened demand outlook from the worlds top consumer. The US economy expanded by a better-than-expected 3.5% in the third quarter, while upbeat consumer sentiment reflected the labor markers continued improvement.

The US dollar index for settlement in December fell by 0.15% to 87.280 by 12:36 GMT on Tuesday, having ranged between 87.385 and 87.170 during the day. The U.S. currency gauge settled 0.45% higher on Monday at 87.407 after it surged to 87.540, the highest in more than four years.

The Commerce Department’s Bureau of Economic Analysis is expected to report at 13:30 GMT that the US trade deficit probably narrowed slightly to $40.00 billion in September from $40.10 billion in August. If confirmed, this would be the lowest reading since January.

Later in the day, the US Census Bureau will report on the nation’s factory orders for September. This indicator measures the change in the total value of new purchase orders placed with manufacturers.

Orders are projected to have declined by 0.6% in September on a monthly basis, compared to a 10.1% contraction in August. Excluding the sector of transportation, orders probably have risen by 0.1%.

Market players also awaited the release of this weeks all-important October jobs report by the US Department of Labor, as well as key economic data from Europe, coupled with BoE and ECBs interest rate decisions.

US supplies

Prices were also pressured amid speculations that US crude oil inventories probably jumped for a fifth straight week in the seven days through October 31st. Stockpiles are expected to have risen by 1.9 million barrels to 381.6 million, while gasoline and distillate fuel supplies probably declined by 1 million and 2.2 million barrels, respectively.

The EIA reported last Wednesday that US crude oil inventories rose by 2.06 million barrels in the week ended October 24th to 379.7 million, while refineries utilization rate slid to 86.6% and US crude oil production surged to 8.970 million barrels per day, the highest in data going back to January 1983.

Industry group the American Petroleum Institute will release its separate data at 21:30 GMT today. However, APIs statistics are deemed less reliable than EIAs figures as they are based on voluntary information provided by operators of pipelines, refineries and bulk terminals, while the government requires reports be filed with the EIA.

Pivot points

According to Binary Tribune’s daily analysis, West Texas Intermediate December futures’ central pivot point is at $79.28. In case the contract breaches the first resistance level at $80.48, it may rise to $82.18. Should the second key resistance be broken, the US benchmark may attempt to advance $83.38.

If the contract manages to breach the first key support $77.58, it might come to test $76.38. With this second key support broken, movement to the downside could continue to $74.68.

Meanwhile, December Brent’s central pivot point is projected at $85.06. The contract will see its first resistance level at $86.12. If breached, it may rise and test $87.45. In case the second key resistance is broken, the European crude benchmark may attempt to advance $88.51.

If Brent manages to penetrate the first key support at $83.73, it could continue down to test $82.67. With the second support broken, downside movement may extend to $81.34 per barrel.