Crude oil trading outlook: futures return to losses after a brief rebound on Tuesday

Both Brent and West Texas Intermediate fell on Wednesday after ending five consecutive days of losses with yesterdays increase as an Iranian official warned that prices would fall further if OPEC does not intervene.

January US crude fell 1.22% on Wednesday to $63.04 per barrel by 07:45 GMT. Prices held in a daily range between $63.43 and $62.82 a barrel. The contract settled 1.22% higher on Tuesday at $63.82.

Meanwhile on the ICE, Brent for delivery in the same month dropped 1.06% to $66.13 a barrel, having shifted in a daily range between $66.36 and $65.78. The European crude benchmark fell to $65.29, its lowest since September 2009, but settled the day with a gain of 0.98% on Tuesday to $66.84, with a premium of $3.02 to WTI. The gap slightly widened to $3.09 on Wednesday.

Crude prices could decline to $40 per barrel as the price war continues or if OPECs 12 members divide into smaller divisions within the group, said an official at Iran’s oil ministry. According to Energy Aspects, OPEC may be forced to schedule an extraordinary official meeting during the first quarter should prices maintain their fall.

Mohammad Sadegh Memarian, head of petroleum market analysis at the oil ministry in Tehran. Iran would likely to campaign for an increase in its production to 4.8 million barrels per day once the sanctions, enforced by the US over the countrys nuclear program, are removed.

Additionally an oil official from the United Arab Emirates said yesterday, that the markets supply and demand would be key factors for determining oil prices in the upcoming months. This is the latest evidence that OPEC is willing to endure low prices after voting against a joint reduction in production last month.

Iraq and Saudi Arabia started offering its crude in the US and Asia at a discounted price on Friday and Monday, respectively, as OPECs top producers tried to defend their market share.

Iraq also announced last week that it had reached a deal with Kurdish officials to increase its export to a maximum of 550 000 barrels per day. Additionally, Libya would boost its production once the path to its biggest oilfield El Sharara is cleared from the pipeline blockage.

Meanwhile, on the other side of the battlefield, the US projects production from its big three shale plays to increase by more than 100 000 barrels per day by January, despite the fact that many shale companies are reducing the spending for next year.

Crude Reserves

The Energy Information Administration reported on Wednesday that US crude oil inventories fell by 3.689 million barrels in the seven days through November 28th to 379.3 million, surpassing analysts’ expectations for a 1.75-million-barrel drop. Stockpiles at the Cushing, Oklahoma storage hub slid to 23.9 million barrels from 24.6 million a week earlier.

Refinery utilization picked up to 93.4% from 91.5% during the week through November 21st. Gasoline production decreased, while distillate fuel output increased, averaging 9.6 million and 5.0 million barrels per day, respectively.

However, this is as far as good news goes. US crude production jumped to 9.083 million barrels per day from 9.077 million, reaching the highest level on recorded weekly data dating back to January 1983. Imports slid to 7.303 million bpd, 170 000 bpd lower from a week earlier, while the four-week average of inbound shipments was 7.323 million bpd, 6.2% below year-ago levels.

Total motor gasoline inventories jumped by 2.143 million barrels to 208.6 million, exceeding analysts’ expectations for a 1.040-million jump. Distillate fuel stockpiles, which include diesel and heating oil, surged by 3.028 million barrels to 116.2 million, defying projections for a 180 000-barrel decline.

Pivot Points

According to Binary Tribune’s daily analysis, West Texas Intermediate January futures’ central pivot point is at $63.42. In case the contract breaches the first resistance level at $64.60, it may rise to $65.37. Should the second key resistance be broken, the US benchmark may attempt to advance $66.55.

If the contract manages to breach the first key support $62.65, it might come to test $61.47. With this second key support broken, movement to the downside could continue to $60.70.

Meanwhile, January Brent’s central pivot point is projected at $66.39. The contract will see its first resistance level at $67.49. If breached, it may rise and test $68.14. In case the second key resistance is broken, the European crude benchmark may attempt to advance $69.24.

If Brent manages to penetrate the first key support at $65.74, it could continue down to test $64.64. With the second support broken, downside movement may extend to $63.99 per barrel.