Crude oil trading outlook: futures drop below $60 on market surplus

Both Brent and West Texas Intermediate fell on Friday, marking its fourth decline within five trading sessions and headed for its 10th weekly decrease as major OPEC members offered discounts for their crude.

January US crude fell 1.12% on Friday to $59.28 per barrel by 07:56 GMT. Prices held in a daily range between $61.68 and $58.80 a barrel, its lowest since July 2009. The contract settled 1.62% lower on Thursday at $60.94.

Meanwhile on the ICE, Brent for delivery in the same month dropped 0.52% to $63.35 a barrel, having shifted in a daily range between $65.13 and $63.00, also the weakest since July 2009. The European crude benchmark fell 0.87% on Thursday to $63.68, with a premium of $2.74 to WTI. The gap slightly widened to $4.07 on Thursday.

The Organization of Petroleum Exporting Countries, which supplies around 40% of the worlds oil, announced earlier this week that demand for 2015 will reach its lowest in more than ten years.

The group cut its projection of global demand, after Saudi Arabia, Iraq and Kuwait, the top 3 OPEC producers, offered its crude at a discounted price in Asia. Meanwhile, Iran did not announce its next months price list yet, but the country is expected to follow the leaders within the 12-member group.

The recent discounts and the rejection from OPEC to reduce its output of 30 million barrel per day, created and later bolstered speculations that the group is defending its market share. The moves were seen as targeted at the US shale production, which generates production at its fastest rate in 30 years.

However, Iraq’s Oil Marketing said that price configuration of its Basrah Light for Asia is “based on the market structure for both oil products and crude oil.”

“The widened contango in crude oil prices in Asia was the major reason behind the cut. There is no basis for a ‘price war’,” said the company in a statement cited by Bloomberg.

Meanwhile, there are also other speculations around the group.

“There is a price war within OPEC,” Abdul Mahdi, Iraqs politician and economist, said in Baghdad at a parliamentary session broadcast on state-run television. “The market’s fundamentals have changed, with an extra 3 million barrels a day of crude entering the market at a time when growth in China and India has slowed.”

Also, Algeria and Venezuela may push for an emergency meeting to be scheduled early next year. Although it is unknown, if a meeting is actually held, whether Saudi Arabia would be convinced to cut production.

China, the biggest energy consumer, is due to release later today its monthly crude production and refinery information and also money supply data. Should the information released be under expectations, oil prices could extend their fall.

Crude Reserves

The Energy Information Administration reported on Wednesday that US crude oil inventories increased by 1.5 million barrels in the seven days through December 5th to 380.8 million, compared to analysts’ expectations for a 2.5-million-barrel drop. Stockpiles at the Cushing, Oklahoma storage hub edged up to 24.9 million barrels from 23.9 million a week earlier.

Refinery utilization picked up to 95.4% from 93.4% during the week through December 5th.

US crude production jumped to 9.118 million barrels per day from 9.083 million, reaching the highest level on recorded weekly data dating back to January 1983. Imports climbed to 7.668 million bpd, compared to the 7.303 bpd 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 8.2 million barrels to 216.8 million, while distillate fuel stockpiles, which include diesel and heating oil, surged by 5.6 million barrels to 121.8 million.

Pivot Points

According to Binary Tribune’s daily analysis, West Texas Intermediate January futures’ central pivot point is at $60.20. In case the contract breaches the first resistance level at $61.43, it may rise to $62.92. Should the second key resistance be broken, the US benchmark may attempt to advance $64.15.

If the contract manages to breach the first key support $58.71, it might come to test $57.48. With this second key support broken, movement to the downside could continue to $55.99.

Meanwhile, January Brent’s central pivot point is projected at $63.95. The contract will see its first resistance level at $64.86. If breached, it may rise and test $66.03. In case the second key resistance is broken, the European crude benchmark may attempt to advance $66.94.

If Brent manages to penetrate the first key support at $62.78, it could continue down to test $61.87. With the second support broken, downside movement may extend to $60.70 per barrel.