Crude oil trading outlook: futures fall for fourth day on supply-demand imbalance

West Texas Intermediate and Brent crude extended an eight weekly decline on Wednesday as the UAE and Kuwait predicted a supply overhang will persist to at least the second half of 2015, while the World Bank cut its global economic growth outlook for the year. US crude oil inventories were seen rising last week, exacerbating oversupply concerns.

US crude for delivery in February fell 1.55% to $45.18 per barrel by 8:18 GMT, having shifted in a daily range of $46.40-$45.12 per barrel. The contract fell 0.39% on Tuesday to $45.89, the lowest settlement since April 2009.

Meanwhile on the ICE, Brent for delivery in the same month was down 1.95% to trade at $45.68 a barrel. Prices shifted between $46.99 and $45.59 during the day. The contract slid 1.77% to $46.59 yesterday, having earlier declined to $45.19 a barrel, the lowest since March 2009. Brent traded at a premium of $0.50 to its US counterpart, down from Tuesdays settlement at $0.70.

Kuwaits Oil Minister Ali Al-Omair said yesterday that the market currently swims in an oversupply of 1.8 million barrels per day and that accelerating global economic growth will be needed to soak the excess production. He added that the market will not recover before the oversupply is absorbed, which will likely not happen before the second half.

The United Arab Emirates, OPEC’s fifth-largest producer, reaffirmed its plans to expand output capacity to 3.5 million barrels per day in 2017, ignoring a global supply overhang that has sent prices falling by 60% since a June peak.

UAE Energy Minister Suhail Al Mazrouei said yesterday: “In this time of unstable oil prices, we are showing in Abu Dhabi and across the country that we remain dedicated to reach our long-term production goals. Our investments remain there.”

OPEC, which accounts for about 40% of global supply, reached a collective decision on November 27th to keep its production quota unchanged, ignoring smaller members’ appeals to lower output in order to cushion a steep price drop. According to a Bloomberg survey, the oil cartel pumped 30.24 million bpd of crude in December, lower than November but still exceeding its official target.

“It will all depend on what we see in this quarter and the next quarter,” Mazroui said in response to questions to when oil would stabilize. “Most probably we are going to wait until our meeting in June, and let’s not jump to conclusions.”

Global growth, demand outlook

The World Bank cut its global growth estimate this year citing subpar expansions in Europe and China, which sent oil, base and precious metals tumbling. The global economy is now expected to grow by 3% in 2015, compared to a previous projection for 3.4% made in June. The UN financial institution trimmed its outlook for China, saying it was undergoing a “managed slowdown”, while also cutting forecasts for the euro area and Japan.

The International Monetary Fund is due to update its view on 2015 global growth next week after it cut its previous forecast in October.

Slowing growth may impede a recovery in oil markets, which would keep disinflationary pressures at hand, fanning uncertainty of whether the Bank of Japan and the Federal Reserve will achieve their 2% inflation targets.

UAEs Al Mazrouei, however, said that oil demand is rising in China, and Asia overall, adding that it is shale oversupply that needs correction and that OPEC will stand firm and not cut output.

Government data showed yesterday that China imported a record amount of crude in December, with inbound shipments surging 19.5% from November to 30.4 million tons. Crude imports jumped for the first time above 7 million barrels per day in December, while for the entire year they rose 9.5% to 6.2 million barrels per day.

Bloomberg reported, citing Norbert Ruecker, head of commodity research at Julius Baer Group Ltd., that US drilling activity has slowed to in core US shale regions.

Industry group the American Petroleum Institute said yesterday that US crude oil inventories rose last week by 3.9 million barrels, while distillate and gasoline inventories also jumped, by 0.416 and 1.6 million barrels, respectively.

A government report due at 15:30 GMT today is expected to show that US crude oil inventories probably rose by 0.42 million barrels in the week ended January 9th. Distillate fuel inventories, which include diesel and heating oil, probably jumped by 2.13 million barrels last week, while gasoline stockpiles likely expanded by 3.47 million.

Last week’s report showed an unexpected decline in crude supplies of 3.062 million barrels, but inventories in Cushing, Oklahoma jumped and both fuel categories surged by a combined record of over 19 million barrels.

Pivot points

According to Binary Tribune’s daily analysis, West Texas Intermediate February futures’ central pivot point is at $45.63. In case the contract breaches the first resistance level at $47.05, it may rise to $48.22. Should the second key resistance be broken, the US benchmark may attempt to advance $49.64.

If the contract manages to breach the first key support at $44.46, it might come to test $43.04. With this second support broken, movement to the downside could continue to $41.87.

Meanwhile, February Brent’s central pivot point is projected at $46.36. The contract will see its first resistance level at $47.52. If breached, it may rise and test $48.46. In case the second key resistance is broken, the European crude benchmark may attempt to advance $49.62.

If Brent manages to penetrate the S1 level at $45.42, it could continue down to test $44.26. With the second support broken, downside movement may extend to $43.32 per barrel.