Crude oil trading outlook: futures retreat on dollar, OPEC determination

Both West Texas Intermediate and Brent crude retreated from the highest close in almost two weeks, dragged by a strong dollar and as major OPEC producers remained determined to defend their market share, with some showing readiness to boost output. Support was drawn by a continuously improving US economic outlook.

US crude for delivery in February stood 1.21% lower at $56.43 per barrel at 9:26 GMT, having shifted in a daily range of $57.15-$56.33. The contract jumped 3.37% on Tuesday to settle at $57.12 a barrel, the highest close since December 12th.

Meanwhile on the ICE, Brent for delivery in the same month slid 1.18% to $60.96 a barrel, having ranged between $61.71 and $60.94 during the day. The European benchmark crude jumped 2.63% yesterday to $61.69, the highest close since December 12th. Brents premium to WTI narrowed to $4.53 from Tuesdays settlement at $4.57.

Oil prices drew support yesterday as third-quarter economic growth in the US blew past expectations, hitting an annualized 5.0% as US consumers and businesses spent more than initially estimated. This was the highest since Q3 2003 and compared to analysts’ projections of 4.3% and a preliminary estimate of 3.9%.

A separate report showed that December consumer sentiment surged to a pre-recession high, with the corresponding Thomson Reuters/University of Michigan index jumping to 93.6 from 88.8 in November. Personal income rose by 0.4% in November on a monthly basis, compared to 0.3% in October, while personal spending increased by 0.6%.

Albeit bolstering demand prospects, the better-than-expected data also firmed the dollar, which rallied to the highest in almost nine years against a basket of major trading peers. The US dollar index for settlement in March stood 0.20% lower at 90.145 at 9:23 GMT. It surged 0.42% on Tuesday to 90.326, having earlier risen to 90.405, the highest since April 2006. A stronger greenback makes dollar-denominated commodities pricier for foreign currency holders and curbs their investment appeal.

Apart from the upbeat GDP growth and consumer sentiment, there were a few soft points in Tuesdays data. Durable goods orders unexpectedly dropped in November as the cooling global economy induced less or little-changed demand for computers, metals and electrical equipment. Orders for goods meant to last more than three years fell by 0.7% in November, while a core measure slid 0.4%, rebutting forecasts for a 1.1% gain, and durable goods orders ex defense contracted 0.1% as opposed to an expected 1.6% jump.

A separate report showed that sales of newly built homes in the US declined by 1.6% in November to an annualized rate of 438 000, defying expectations for a jump to 460 000. This added to data by the National Association of Realtors which showed yesterday that purchases of previously owned homes in the US fell more than expected last month.

OPEC

Support by the booming US economy was however offset by OPECs determination to maintain its market share, with members rallying behind Saudi Arabia and already adjusting their budgets according to the lower prices.

Saad Al-Hadithi, a spokesman for the Iraqi prime minister’s office, said that Iraq approved a budget of 123 trillion dinars ($103 billion) for 2015, compared to previous plans of 141 trillion dinars. The spending plan was based on oil prices of $60 per barrel.

Iraqi Oil Minister Adel Abdul Mahdi said earlier in the week that his country plans to raise production to 4 million barrels per day next year and that the group’s November 27 decision to maintain output was part of an effort to retain market share. Prices have fallen some 20% since the Vienna meeting.

Saudi Arabian Oil Minister Ali Al-Naimi told the Middle East Economic Survey on Monday that the kingdom doesnt plan to scale back production regardless of the prices reached. “Whether it goes down to $20, $40, $50, $60, it is irrelevant,” he was cited.

On Sunday, Al-Naimi said that the global supply glut that recently drove oil prices to the lowest in 5-1/2 years was created by the lack of cooperation from non-OPEC producers. The group will probably refrain from cutting output, even if non-member producers offer to pump less, Al-Naimi said, and expressed confidence that oil will rebound as reviving global economic growth will spur demand.

This comes at a time of ever-growing US crude output, with the Energy Information Administration having reported that US producers pumped 9.137 million barrels of crude per day in the week ended December 12th, the highest on weekly data started in January 1983.

UAE Energy Minister Suhail Al Mazrouei said on Sunday that “irresponsible” production from outside OPEC is behind the fall in prices. “We call on all other producers to stop the increase” he said.

US supplies

Market players now turned their attention to Wednesdays US supply data to gauge demand in the worlds top consumer and revisit the countrys domestic production figures. Data by the American Petroleum Institute showed that US crude oil inventories jumped by 5.4 million barrels last week, compared to a projected decline of 2.3 million barrels.

APIs data, however, is deemed less reliable than EIAs report as they are based on voluntary information from operators of pipelines, refineries and bulk terminals, while the government requires reports to be filed with the Energy Information Administration. According to a Bloomberg survey of analysts, todays report will likely show that US crude supplies slid to 377.4 million barrels in the seven days through December 19th from 379.9 million a week earlier.