Crude oil trading outlook: futures fall further without OPEC support

Brent and West Texas Intermediate extended losses to the lowest in more than five years after OPEC decided against production cuts last week. Downbeat manufacturing data from China and Europe further weighed.

January US crude fell by 2.74% on Monday to $64.34 per barrel by 08:34 GMT. Prices held in a daily range between $66.18 and $63.72 a barrel, the lowest since July 2009. The contract settled 10.23% lower on Friday to $66.15.

Meanwhile on the ICE, Brent for delivery in the same month fell 2.48% to $68.41 a barrel, having shifted in a daily range between $70.35 and $67.53, the lowest since October 2009. The European crude benchmark settled 3.35% lower on Friday at $70.15, at a premium of $4 to WTI. The gap widened to $4.07 on Monday.

“Just when the market was thinking that a 4-year low for crude oil was bad enough, we have hit a 5-year low after the OPEC meeting,” analysts at Phillip Futures said in a note.

Oil capped its fifth consecutive monthly loss, also the largest in six years, after the Organization of the Petroleum Exporting Countries voted against cuts in its production target of 30 million barrels a day during its official meeting in Vienna last week.

OPEC targeted the US shale production, which is operating at its highest pace in 30 years, as it said it will stay on the side lines and wait for the market to balance out itself. However, current prices do not ensure a significant drop in US shale output.

According to the International Energy Agency, around 4% of US shale production requires a higher price than $80 per barrel to stay profitable, while major output areas, like the Bakken formation, would still be cost-effective at below $42 a barrel. The agency also projected US supply to increase by nearly 1 million barrels a day in the next year.

“It’s clear that a production war is on and it will be survival of the fittest” said Phil Flynn, senior market analyst at the Price Futures Group, in an e-mail cited by Bloomberg. WTI “will see a test of $60 soon” he added.

However, the decision to not intervene is not beneficial for all 12 members of the group, which supplies around 40% of the worlds oil. Venezuela, Iran and Iraq among others were campaigning for an output reduction, but Saudi Arabias oil minister insisted that OPEC must fight the US shale oil boom.

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.

In China, the Manufacturing Purchasing Managers Index fell to 50.3 in November, down from the previous month and lower than expected, according to data released by the National Bureau of Statistics. Private research by HSBC also pointed towards declining activity, with the PMI landing at 50.0, compared to 50.4 in October.

“Todays data suggest that the manufacturing sector lost momentum and point to weaker economic activity in November” said Hongbin Qu, Chief Economist, China & Co-Head of Asian Economic Research at HSBC.

Manufacturing activity in the Eurozone also came in worse than expected, while the German manufacturing sector contracted last month. Meanwhile, the Institute for Supply Management is expected to report that its PMI slid to 57.9 in November from 59.0 in October, while a separate report by Markit Economics is likely to show a slightly faster pace of growth in US manufacturing.

Pivot Points

According to Binary Tribune’s daily analysis, West Texas Intermediate January futures’ central pivot point is at $68.47. In case the contract breaches the first resistance level at $71.24, it may rise to $76.34. Should the second key resistance be broken, the US benchmark may attempt to advance $79.11.

If the contract manages to breach the first key support $63.37, it might come to test $60.60. With this second key support broken, movement to the downside could continue to $55.50.

Meanwhile, January Brent’s central pivot point is projected at $71.11. The contract will see its first resistance level at $72.45. If breached, it may rise and test $74.74. In case the second key resistance is broken, the European crude benchmark may attempt to advance $76.08.

If Brent manages to penetrate the first key support at $68.82, it could continue down to test $67.48. With the second support broken, downside movement may extend to $65.19 per barrel.

Where do you think will the oil market find a stable floor?

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