Crude oil trading outlook: futures hover near 4-year lows on OPEC worries, US output

Both West Texas Intermediate and Brent benchmark crudes traded near their lowest in more than four years as major OPEC producers resisted calls to cut production, while output in the US surged to the highest on record. An unexpected drop in US crude stockpiles lent minimal support but a strong dollar continued to weigh on commodities across the board.

December US crude fell by 0.98% to $73.48 per barrel by 8:10 GMT, having earlier fallen to $73.25, the lowest since September 2010. Prices slid 3.85% on Thursday to $74.21 a barrel, also the lowest since September 2010. Prices are down 6.7% so far this week, poised for a seventh straight weekly drop, the longest such streak since March 1986.

Meanwhile on the ICE, Brent for delivery in January slid 0.34% to $77.23 a barrel. Prices fell to $76.76 earlier in the day, the weakest level since September 2010. The contract plunged 4.47% on Thursday to $77.49 a barrel and is down little over 8% on weekly basis, set for an eighth consecutive weekly decline which would be the longest losing stretch since 1988. Brent was at a premium to January WTI of $3.8, up from yesterdays settlement at $3.33.

The Energy Information Administration reported yesterday that US crude oil stockpiles unexpectedly fell by 1.7 million barrels to 378.5 million in the week through November 7th, defying analysts projections for a 1.1-million build. However, supplies at Cushing, Oklahoma, the biggest US storage hub and delivery point for NYMEX-traded contracts, rose by 1.7 million barrels to 22.5 million, the highest since May 16th.

Refinery utilization rates continued to recover and reached 90.1% from 88.4% a week earlier, but US crude production edged up further and hit the highest on record at 9.063 million barrels per day, 91 000 bpd more than during the previous week.

Motor gasoline production decreased, while distillate fuel production increased, averaging 9.3 and 4.8 million barrels per day, respectively.

Total motor gasoline inventories rose by 1.8 million barrels to 203.6 million, exceeding forecasts for a 0.35-million gain, while distillate fuel stockpiles, which include diesel and heating oil, dropped 2.8 million barrels, outperforming a projected 1.5-million decline.

OPEC worries

Record high US crude output at a time of slumping global prices exacerbated already widespread fears of a price war between OPEC and US shale oil producers. Both WTI and Brent benchmark crudes plummeted to the lowest in four years as major OPEC producers underscored their unwillingness to pump less and lose market share, allegedly targeting a forced reduction in US shale oil output.

Mark Keenan, head of commodities research in Asia at Societe Generale in Singapore, said for CNBC: “Weve got a period of very heightened volatility in the lead-up to the Nov. 27 OPEC meeting.”

“The market is running scared at the moment,” Jonathan Barratt, chief investment officer at Ayers Alliance Securities, said for Bloomberg. “It will ebb and flow toward how OPEC is thinking. Not until we get closer to the meeting will prices start to shore up.”

But broad market expectations pointed to only a minor production cut, and mostly likely a complete lack of one, fueled by signals sent from leading OPEC producers.

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 Arabia’s oil minister Ali Al-Naimi remained silent about a possible production cut and said on Wednesday that the kingdom is committed to a stable market and a price war within the group “has no basis in reality”.

A strong dollar also continued to weigh on the market. The US dollar index stood at 88.020 at 8:09 GMT, up 0.31% on the day, having hit a one-week high of 88.170 earlier in the session. On Thursday the US currency gauge lost 0.18% and closed at 87.752. The US currency gauge rose to 88.315 on November 7th, the highest since June 2010.

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

Also weighing on the market, Libyas Hariga export terminal, with a capacity of 120 000 barrels per day, was reopened after security personnel ended a strike over unpaid wages, but the El Sharara oilfield remained closed.

Pivot points

According to Binary Tribune’s daily analysis, West Texas Intermediate December futures’ central pivot point is at $75.15. In case the contract breaches the first resistance level at $76.22, it may rise to $78.24. Should the second key resistance be broken, the US benchmark may attempt to advance $79.31.

If the contract manages to breach the first key support $73.13, it might come to test $72.06. With this second key support broken, movement to the downside could continue to $70.04.

Meanwhile, January Brent’s central pivot point is projected at $78.60. The contract will see its first resistance level at $79.90. If breached, it may rise and test $82.32. In case the second key resistance is broken, the European crude benchmark may attempt to advance $83.62.

If Brent manages to penetrate the first key support at $76.18, it could continue down to test $74.88. With the second support broken, downside movement may extend to $72.46 per barrel.