Crude oil trading outlook: futures extend losses after OPEC rejects production cuts

Brent and West Texas Intermediate continued their streak of losses, reaching their biggest daily decline in more than three years, after OPEC decided not to support prices by reducing production.

January US crude fell by 7.67% on Friday to $68.04 per barrel by 07:55 GMT. Prices held in a daily range between $73.56 and $67.75 a barrel, the lowest since late-May 2010. The contract lost 0.54% on Wednesday to $73.69.

Meanwhile on the ICE, Brent for delivery in the same month fell 1.64% to $71.39 a barrel, having shifted in a daily range between $72.70 and $71.12, also the lowest since May 2010. The European crude benchmark dropped 6.56% on Thursday to $72.58. On Friday Brent was trading at a premium of settling at a premium of $3.35 to WTI.

After the official meeting in Vienna, Saudi Arabia’s Oil Minister Ali Al-Naimi said that OPEC will continue its combined daily production of 30 million barrels. The groups move will surely hurt US shale industry, projected Vice President Leonid Fedun of Russias Lukoil.

Brent declined almost 40% since June, dropping from above $115 per barrel amid peak US shale production and sluggish global demand. OPEC is aiming at a fair price and isnt “sending any signals to anybody” Secretary-General Abdalla El-Badri said.

Igor Sechin, CEO of Russia Rosneft and one of the most important oil figures, projected that prices could drop to $60 or more by the end of next years first six months. Mr. Sechin also said that Russia has the potential to reduce output by 200 000 and 300 000 barrels per day if prices maintain low levels, hinting that current prices are not a threat to Russia.

However, Nicolas Maduro, president of Venezuela said that until prices reach $100 per barrel, the country will not stop asking for production cuts.

Goldman Sachs Group said in an emailed statement, that OPECs decision to not cut output can hurt prices further and will probably cause a “large market surplus” in the first half of next year, but the bank did not change its projection of Brent to range between $80 and $85 a barrel and WTI to trade at $70 to $75 in 2015.

Bijan Namdar Zanganeh, Irans oil minister said he is not angry by the meetings outcome, although it was “not in line with what we wanted.” Diezani Alison-Madueke, the Nigerian oil minister, added that OPEC is not “playing hardball, and said he has been voted president of the group in 2015. OPECs next meeting is scheduled on June 5 in the Austrian capital.

Crude reserves

The oil market remained under pressure by Wednesday’s bearish EIA inventory report. The government agency said that US crude supplies jumped by 1.946 million barrels to 383.0 million last week, exceeding analysts’ projections for a 250 000-barrel increase. Inventories at the Cushing, Oklahoma storage hub rose by 1.4 million barrels to 24.6 million.

Domestic crude production surged to 9.077 million barrels per day from 9.004 million last week, the highest on record for weekly data dating back to January 1983. Refineries operated at 91.5% of their operable capacity, compared to 91.2% during the week ended November 14th.

Total motor gasoline supplies gained 1.825 million barrels to 206.4 million, exceeding analysts’ projections for a jump of 1.817 million. Distillate fuel inventories, which include diesel and heating oil, fell by 1.648 million barrels to 113.1 million, topping forecasts for a 0.550-million increase.

Also weighing on the oil segment, the US Labor Department reported Wednesday that initial jobless claims rose to 313 000 in the week ended November 22nd, the highest since early September. Separate data showed that pending home sales unexpectedly contracted in October, while the annualized growth pace of new home sales came in below expectations.

A better-than-projected durable goods orders report for October fanned positive sentiment but the Thomson Reuters/University of Michigan Consumer Sentiment Index unexpectedly slid in November, confirming a drop in consumer confidence reported by the Conference Board on Tuesday.

Pivot Points

According to Binary Tribune’s daily analysis, West Texas Intermediate January futures’ central pivot point is at $73.82. In case the contract breaches the first resistance level at $74.35, it may rise to $75.00. Should the second key resistance be broken, the US benchmark may attempt to advance $75.53.

If the contract manages to breach the first key support $73.17, it might come to test $72.64. With this second key support broken, movement to the downside could continue to $71.99.

Meanwhile, January Brent’s central pivot point is projected at $73.76. The contract will see its first resistance level at $76.28. If breached, it may rise and test $79.97. In case the second key resistance is broken, the European crude benchmark may attempt to advance $82.49.

If Brent manages to penetrate the first key support at $70.07, it could continue down to test $67.55. With the second support broken, downside movement may extend to $63.86 per barrel.