Crude oil trading outlook: futures advance on OPEC supply cut, US sentiment

West Texas Intermediate crude rose for a third day and Brent held ground above $86 a barrel as Iran sought ways to halt oils rout, while Saudi Arabia and Kuwait cut output from an oilfield. Upbeat sentiment data from the US on Friday gave equity markets a push up, also benefiting oil, but gains remained in check after US crude oil inventories were at their highest since July and US crude production stood at a 29-year peak.

December US crude traded at $82.42 per barrel at 7:06 GMT, up 0.44% on the day, having ranged between $82.73 and $82.23 during the day. The contract gained 0.13% on Friday, up for a second day, and settled the week at $82.06, rebounding from the lowest level in more than two years reached on Thursday.

Meanwhile on the ICE, Brent for delivery in the same month advanced 0.16% to $86.30 a barrel. Prices varied in a daily range of $86.70-$86.12. The European benchmark crude rose 0.4% on Friday to $86.16, drifting further away from Thursdays four-year low of $82.93. Brents premium to its US counterpart narrowed to $3.88 from Fridays close at $4.10.

Oil advanced on Monday after state-run news agency Mehr reported that Iranian President Hassan Rouhani instructed Irans Oil Minister Bijan Namdar Zanganeh to use diplomatic tools to halt the oil markets decline, spurring speculations OPEC may address the falling price issue as opposed to previous beliefs. Zanganeh in turn made proposals after Rouhanis requests, providing the market with short-term support.

Prices also received a boost after output at the Saudi-Kuwait Khafji oilfield was halted temporarily due to environmental concerns, leaving offline production of 280 000 – 300 000 barrels per day, little over 2% of Saudi Arabias total capacity. Although the shutdown was not attributed to any shift in OPECs production policy and probably wont warrant a drop in overall output due to spare capacity, it was seen as a bullish factor, given the recent oversupply worries.

The International Energy Agency said last week that global oil consumption will climb by only 650 000 barrels per day this year, a downward revision of 250 000 bpd from its prior estimate. This was the IEA’s fourth consecutive monthly forecast revision, with projections now slashed in half from July’s 1.3-million bpd growth estimate.

The Paris-based agency also said that OPEC will need to supply around 200 000 barrels per day less crude this year and in 2015. The group pumped 30.47 million bpd in September, the most since August 2013.

This came a week after the IMF cut its global economic growth forecast for 2015 and after Saudi Arabia decided to cut its prices to Asian buyers, followed by Iran and Iraq.

Venezuela’s foreign ministry said on October 10th that the country will seek an extraordinary OPEC meeting to discuss falling prices. However, oil ministers from Kuwait and Algeria dismissed possible output reductions. Ali al-Omair, Kuwait’s oil minister, said for the official Kuwait News Agency that while producers would like higher prices, there was “no room” to achieve that by cutting output.

However, banks including BNP Paribas SA and Bank of America Corp. predicted the slide might be over soon as they expected OPEC to reduce production. Meanwhile, Goldman Sachs disputed the global supply glut, saying it was yet to materialize, and noted prices have dropped too much and too early.

US supplies, economic data

US crude production surged to 8.951 million barrels per day in the seven days through October 10th, the highest since June 1985, while refineries operated at 88.1% of their operable capacity, down from 89.3% from a week earlier.

US crude oil supplies rose by 8.92 million barrels in the week ended October 10th to 370.6 million, the highest level since July. Analysts had projected a jump of around 2.5 million barrels. Stockpiles at Cushing, Oklahoma, rose to 19.6 million barrels from 18.9 million a week earlier.

The downbeat supply data, however, was offset by a rebound in industrial production, while initial jobless claims and their four-week average fell to the lowest in more than 14 years, underscoring a healthier US labor market.

Another bright spot which sent Asias equity markets soaring on Monday was US consumer sentiment jumping to the highest in more than seven years. The preliminary Thomson Reuters/University of Michigan index of consumer sentiment unexpectedly rose to 86.4 in October, the highest since July 2007, defying projections for a drop to 84.1 from 84.6 in September.

A separate report showed housing starts rose more than expected at 6.3% in September, reversing a 12.8% decline a month earlier and underscoring solid underlying fundamentals for the US economy.

Some geopolitical support was drawn by the ongoing clashes in the Syrian border town of Kobane, where US military aircraft dropped weapons and medical supplies to support Kurdish fighters battling Islamic State militants. CentCom said that the supplies were intended to enable continued resistance against ISs attempts to overtake Kobane, but despite the support, it warned that Kobane could still fall under the control of Islamic State.

Some risk to global oil supplies was also perceived by market players after a self-proclaimed government controlling Tripoli announced its oil policies. Libya is the holder of Africas biggest crude oil reserves.

Market players eyed key economic data for the week, including Chinas third-quarter GDP growth rate, as well as, among others, housing and consumer inflation data from the United States.

Pivot support and resistance levels

According to Binary Tribune’s daily analysis, West Texas Intermediate December futures’ central pivot point is at $82.52. In case the contract breaches the first resistance level at $83.28, it may test $84.51. Should the second key resistance be broken, the US benchmark may attempt to advance to $85.27.

If the contract manages to breach the first key support at $81.29, it might come to test $80.53. With this second key support broken, movement to the downside could continue to $79.30.

Meanwhile, December Brent’s central pivot point is projected at $86.33. The contract will see its first resistance level at $87.17. If breached, it may rise and test $88.18. In case the second key resistance is broken, the European crude benchmark may attempt to advance to $89.02.

If Brent manages to penetrate the first key support at $85.32, it could continue down to test $84.48. With the second support broken, downside movement may extend to $83.47 per barrel.