Crude oil trading outlook: WTI futures hold above $82 ahead of supply data

West Texas Intermediate clung to overnight gains ahead of government data that may show US gasoline supplies fell to the lowest in two years. Brent was steady above $86 after rising Chinese crude demand offset a slowdown in the Asian economy, the worlds second-biggest consumer.

US December crude traded 0.04% higher at $82.52 a barrel at 7:18 GMT, having shifted in a daily range of $82.87-82.34. The American crude benchmark gained 0.71% on Tuesday, reversing Mondays 0.2% loss, to settle at $82.49, the highest in a week.

Meanwhile on the ICE, Brent for delivery in the same month stood 0.14% higher at $86.34 a barrel, having ranged between $86.46 and $86.14 during the day. The contract rose almost 1% on Tuesday to $86.22, drifting further away from Thursdays four-year low of $82.93. Brent was at a premium of $3.82 to its US counterpart, up from Tuesdays close at $3.73.

The oil market received support ahead of supply data that may show US gasoline inventories fell by 1.45 million barrels to a two-year low of 204.2 million in the week ended October 17th, according to a Bloomberg survey of analysts. Distillate fuel inventories, which include diesel and heating oil, are projected to have fallen by 1.5 million barrels, the EIA will likely report, while crude oil inventories probably rose for a third straight week, by 3 million barrels.

Industry group the American Petroleum Institute reported yesterday that crude oil supplies jumped by 1.2 million barrels last week, while the two refined product categories both marked withdrawals. Gasoline stocks decreased by 532 000 barrels, while distillate fuel inventories shed 822 000 barrels.

APIs data, however, is deemed less popular as it is based on voluntary data provided by operators of pipelines, refineries and bulk terminals, while the government requires reports be filed with the Energy Information Administration.

Demand outlook

Oil prices plunged to the lowest in years after falling demand and signs of a stalling global economy were further exacerbated by major OPEC producers cutting prices to Asian buyers instead of lowering output, a move to protect market share. The IMF cut its global economic growth forecast for 2015, while the IEA trimmed its 2014 demand growth anticipation for the fourth consecutive month.

China’s National Bureau of Statistics reported yesterday that the Asian economy grew by an annualized 7.3% in the third quarter, the lowest since Q1 2009, compared to 7.5% in the second quarter. Although the reading beat broad analyst expectations for a slowdown to 7.2%, it still sparked expectations the government will need to introduce additional stimulus measures to prevent a sharper drop in economic activity.

The slow growth was offset, however, by a jump in Chinese oil demand. Implied oil consumption rose by 6.2% on a monthly basis in September to 10.3 million barrels per day, the highest since February, as imports and throughput rose to the second-highest this year.

Refiners processed around 42 million tons of crude oil last month, marking a 9.1% annualized rise, the biggest jump since June 2013.

Also fanning positive sentiment, China’s industrial production expanded by 8.0% in September from a year earlier, exceeding analysts’ projections for a 7.5% growth from the preceding month’s 6.9% annualized expansion which was the slowest in more than five years. With industrial output steadily growing, Chinese crude oil demand is expected to continuously rise, which however is not anticipated to play a major role in the short-term given the ample global supplies.

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

Yusuke Seta, commodity sales manager at Newedge Japan in Tokyo, said for CNBC: “Brent has been recovering, and seeing that oil prices have plunged enough, its looking like this level is a good opportunity to buy.” He added that he doesnt expect any further sharp declines because, although Europes economic activity is weakening, Asia is recovering and US demand is expected to rebound after the maintenance period.

Pivot points

According to Binary Tribune’s daily analysis, West Texas Intermediate December futures’ central pivot point is at $82.43. In case the contract breaches the first resistance level at $83.29, it may test $84.09. Should the second key resistance be broken, the US benchmark may attempt to advance to $84.95.

If the contract manages to breach the first key support at $81.63, it might come to test $80.77. With this second key support broken, movement to the downside could continue to $79.97.

Meanwhile, December Brent’s central pivot point is projected at $85.94. The contract will see its first resistance level at $86.77. If breached, it may rise and test $87.33. In case the second key resistance is broken, the European crude benchmark may attempt to advance to $88.16.

If Brent manages to penetrate the first key support at $85.38, it could continue down to test $84.55. With the second support broken, downside movement may extend to $83.99 per barrel.