Crude oil trading outlook: WTI and Brent futures grind lower after Tuesday rally

WTI and Brent futures were lower during early trade in Europe today, after both contracts logged sizable gains on Tuesday on the back of speculation that OPEC, the worlds top crude supplier, will cut output in 2015. Investors now eye EIAs weekly oil report and a number of economic readings.

WTI futures for October delivery on the New York Mercantile Exchange traded at $94.54 per barrel at 8:13 GMT today, down 0.36% for the day, while prices had ranged from $94.51 to $94.96 per barrel. The US benchmark added 2.1% on Tuesday, after a further 0.8% gain on Monday.

Meanwhile on the ICE in London, November Brent stood at $98.76 per barrel, down 0.29%, daily prices between $98.72 and $99.19 per barrel. The contract’s premium to November WTI narrowed to $5.31. The European brand added 1.2% yesterday.

Yesterday oil prices rallied behind a statement of OPECs secretary general, that the oil-exporting cartel could curb production to 29.5m barrels daily in 2015, bringing it in line with the groups expectations of market demand.

“Cutting output makes sense,” Jonathan Barratt, the chief investment officer at Ayers Alliance Securities in Sydney, said for Bloomberg. “OPEC members will probably remove the spare capacity and tighten the market over the next three to four months. We’ve already seen Saudi Arabia do it.”

Saudi Arabia cut production by about 0.4m barrels daily in August, though it has had little effect on exports.

Traders have been speculating about a OPEC possibly shutting spare production in order to limit global supply and support crude prices against the recent slump. OPEC oil ministers, however, soon dispelled much of the speculation, saying that price fluctuations are normal and that no action is needed, adding that they believe prices will rebound as winter heating demand kicks in.

“Even if OPEC does cut their supply of crude, we do not expect to see drastic changes,” Phillip Futures said in a note cited by Reuters. “This increase in crude prices would not last and would likely dampen again by the end of the week.”

Investors now eye upcoming official US oil inventories data, due later today. The Energy Information Administration (EIA)s weekly readings are usually a trigger for intense trade and big price movements, as it indicates the supply-demand balance in the worlds top oil-consuming economy, where 21% of all oil goes.

A Bloomberg survey suggests crude stocks fell by 1.5m barrels, while gasoline dropped 0.4m and distillates, a category which includes diesel and heating fuel, added 0.8m. A Reuters poll projects a 1.8m draw for crude inventories.

The industry-funded American Petroleum Institute (API) reported its own, separate readings on US oil stocks yesterday. The group read a 3m-barrel build for crude inventories and 1m for distillates, while gasoline stocks were drawn by 1.2m barrels.

Demand outlook

On a broader scale of demand in the economy, several key figures will be reported today. Crucial CPI readings for the US will be posted, and analysts expect robust figures, after PPI readings met expectations yesterday, strengthening outlooks of an earlier-than-previously-expected US rate hike. The US monetary policy body will announce any decisions from its September meeting today, which could hint towards a stronger dollar.

A pricier greenback would be bearish for oil, as it would increase its cost for other currencies, while also boosting demand outlooks in the top-consumer.

Meanwhile, Europe, which consumes about 14% of all oil, has also clocked in its fair share of bearish sentiment with a plethora of negative data. Unlike China, however, the European authority has already intervened with a central lending rate cut to 0.05%, the lowest ever, and the launch of a €3tn QE program.

Investors now eye upcoming EU CPI data, set to gauge any early effects of ECBs intervention, and the pace of the Blocs recovery.

Previously, China, which accounts for 11% of total oil demand, posted the latest in a string of downbeat economic data, with industrial production for August logging the slowest annual growth in almost six years. Below-par data on retail sales, investments and CPI had also weighed on Chinese outlooks, though also spurring speculation that authorities will intervene more heavily to stimulate faltering growth.

Technical support and resistance levels

According to Binary Tribune’s daily analysis for Monday, West Texas Intermediate October futures’ central pivot point is at $94.18. In case the contract breaches the first resistance level at $95.89, it will probably continue up to test $96.91. Should the second key resistance be broken, the US benchmark will most likely attempt to advance to $98.62.

If the contract manages to breach the first key support at $93.16, it will probably continue to drop and test $91.45. With this second key support broken, movement to the downside will probably continue to $90.43.

Meanwhile, November Brent’s central pivot point is projected at $98.65. The contract will see its first resistance level at $99.85. If breached, it will probably rise and test $100.66. In case the second key resistance is broken, the European crude benchmark will probably attempt to advance to $101.86.

If Brent manages to penetrate the first key support at $97.84, it will likely continue down to test $96.64. With the second support broken, downside movement may extend to $95.83 per barrel.