Crude oil trading outlook: Brent hovers near lowest in four years with OPEC in focus, US inventories eyed

Brent traded near the lowest in more than four years after OPEC said demand for its crude will fall next year, while the groups major producers remained silent on whether they will cut output, reinforcing bearish sentiment. A strong dollar and expectations for a sixth weekly build in US inventories also dragged on prices.

December US crude slid 0.26% to $76.98 per barrel by 8:02 GMT, having shifted in a daily range of $77.16-$76.86 a barrel. The contract fell 0.98% to $77.18 on Wednesday, the lowest close since October 2011.

Meanwhile on the ICE, Brent for delivery in January fell 0.53% to $80.69 a barrel. Prices shifted between $81.01 and $80.61 during the day. The contract fell 1.54% on Wednesday to $81.12, having earlier slid to a four-year low of $80.50. Brent was at a premium of $3.77 to WTI for settlement in the same month, further narrowing from yesterdays close at $3.97.

Brent slid to new lows after the Organization of the Petroleum Exporting Countries said in its monthly report on Wednesday that members of the group will need to supply an average of 1.0 million bpd next year less compared to October’s production level, or 29.2 million.

Data showed that OPEC pumped an average of 30.253 million barrels of oil per day in October, down 226 400 barrels from a month earlier. Saudi Arabia, the group’s leading producer, saw its output slide by 69 900 barrels per day to 9.603 million bpd, the lowest in six months.

Albeit falling, OPECs production in October remained above its official target. Moreover, the groups leading producers have stated their unwillingness to pump less and lose market share.

Angola’s Deputy Oil Minister Anibal Octavio da Silva said on Tuesday that the Organization of the Petroleum Exporting Countries is undecided on a production cut, while Kuwait Oil Minister Ali Al-Omair said in Abu Dhabi on November 10th that the group won’t trim its collective crude production target at the upcoming meeting.

Meanwhile, Saudi Arabias oil minister Ali Al-Naimi remained silent about a possible production cut and said yesterday that the kingdom is committed to a stable market and a price war within the group “has no basis in reality”. Al-Naimi not providing any clues on Saudi Arabias stance at the November 27 meeting left investors ambivalent about their expectations of the meetings outcome.

Amrita Sen, an analyst at Energy Aspects, said for CNBC: “The silence from Saudi Arabia is very, very damaging because the market tends to interpret and lets its imagination go wild.”

Meanwhile, the International Energy Agency said that with the tumbling oil prices and the spread between Brent and WTI continuing to narrow, investments in US shale oil production may fall by 10% in 2015.

Strong dollar, supply data

A strong dollar and expectations for a yet another build in US crude oil inventories continued to drag on the market. The US dollar rallied recently to the highest in almost 4-1/2 years amid speculations the Federal Reserve might raise interest rates faster than anticipated as the US economic recovery remains robust and on track.

Industry group the American Petroleum Institute reported on Wednesday that US crude stockpiles surprisingly fell by 1.5 million barrels last week, while gasoline inventories rose 1.1 million and distillate fuels slid 1.3 million.

API’s statistics, however, are deemed less reliable than EIA’s numbers as they are based on voluntary information from operators of pipelines, refineries and bulk terminals, while the government requires reports be filed with the EIA.

A Bloomberg survey of analysts before official statistics, due to be released at 16:00 GMT today, showed expectations for a build of 1.1 million barrels to 381.3 million in the seven days through November 7th. This would be the highest level since July. Gasoline inventories likely gained 350 000 barrels, while distillate fuel supplies, which include diesel and heating oil, probably declined by 1.5 million barrels.

The Energy Information Administration reported last week that US crude oil stockpiles rose by 0.5 million barrels in the seven days through October 31st to 380.2 million barrels. Refinery utilization rates picked up to 88.4% from 86.6% a week earlier but US crude production inched up to 8.972 million barrels per day, reaching the highest on record since January 1983.

Pivot points

According to Binary Tribune’s daily analysis, West Texas Intermediate December futures’ central pivot point is at $77.30. In case the contract breaches the first resistance level at $77.96, it may rise to $78.75. Should the second key resistance be broken, the US benchmark may attempt to advance $79.41.

If the contract manages to breach the first key support $76.51, it might come to test $75.85. With this second key support broken, movement to the downside could continue to $75.06.

Meanwhile, January Brent’s central pivot point is projected at $81.34. The contract will see its first resistance level at $82.18. If breached, it may rise and test $83.24. In case the second key resistance is broken, the European crude benchmark may attempt to advance $84.08.

If Brent manages to penetrate the first key support at $80.28, it could continue down to test $79.44. With the second support broken, downside movement may extend to $78.38 per barrel.

How likely do you think is for OPEC to cut its output target?

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