Crude oil trading outlook: futures decline on ample supplies, Saudi hype passes

Both West Texas Intermediate and Brent benchmark crudes fell on Friday after investors took profits following strong overnight gains and as the market shrug off a Saudi supply cut, having realized the reduction does not reflect a change in the kingdoms output policy.

On the New York Mercantile Exchange, WTI futures for settlement in December fell 0.51% to $81.67 per barrel by 6:53 GMT, having shifted in a daily range of $81.95-$81.32. The contract rose 1.95% on Thursday, the most since September 16th, to settle at $82.09, having earlier fallen to a one-week low of $80.05. The contract is on track to post a fourth weekly decline.

Meanwhile on the ICE, Brent for delivery in the same month stood at $86.49 a barrel, down 0.39%. Prices varied between $86.78 and $86.15 during the day. The European benchmark crude jumped by 2.5% on Thursday, the most since June 12th, and settled at $86.83. Brent traded at a premium of $4.82 to its US counterpart, up from $4.74 on Thursday, based on closing prices. The contract is currently up for the week, which would be Brents first weekly advance in five.

The oil market rebounded on Thursday after an industry source reported that Saudi Arabia has reduced its domestic supply and exports of crude oil to 9.36 million barrels per day in September from 9.69 million in August.

However, some analysts saw the market’s response only as a short-term knee-jerk reaction, given that the kingdom’s output rose to 9.7 million barrels last month from around 9.6 million in August. The difference between output and supplies is put into storage.

Will Yun, a commodities analyst at Hyundai Futures Corp. in Seoul, said for Bloomberg: “The market is widely believing that OPEC won’t cut its production next month. The price level we’re at is what OPEC intends to stay, in order to squeeze profits in the U.S. where the output increase is a threat to Middle East producers.”

Market players watched closely for any shift in OPEC’s production policy but its biggest producers have indicated their reluctance to lower output and lose market share and instead responded with price cuts.

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.

However, oil ministers from Kuwait and Algeria have dismissed possible output reductions. Ali al-Omair, Kuwait’s oil minister, said earlier in October that while producers would like higher prices, there was “no room” to achieve that by cutting output. The 12 members are set to meet in Vienna on November 27th and any cut in output before that is rather unlikely.

Ebola in New York

The oil market also received some pressure following the first confirmed case of Ebola in New York City, which dampened demand for riskier assets and could impact oil consumption.

Ben Le Brun, a market analyst at OptionsXpress in Sydney, said for CNBC: “Such news is not good for risk assets, with investors looking for a flight to safety. This could curb travel and thats how it could feed through to the oil markets.”

US demand

The market continued to digest bearish supply data from the United States, although better-than-expected economic figures spurred confidence the worlds biggest economy continues to steadily recover.

US crude oil inventories jumped by 7.11 million barrels to 377.7 million in the week ended October 17th, the highest inventory level since July.

The larger-than-projected build came amid a typical for the maintenance period lower utilization rate, while domestic crude production stood near the highest in almost three decades.

Refineries operated at 86.7% of their operable capacity, down from 88.1% a week earlier, while US crude output was at 8.934 million barrels per day, close to last week’s 8.951 million bpd, which was the highest since June 1985.

The report also showed that total motor gasoline supplies fell by 1.3 million barrels to 204.4 million, largely in line with analysts’ projections. Distillate fuel stockpiles, which include diesel and heating oil, rose by 1.05 million barrels to 125.7 million, confounding projections for a 1.5-million drop.

Meanwhile, upbeat housing and employment data from the US, coupled with better-than-projected manufacturing gauges from Europe and China, eased fears among investors of a global economic slowdown.

The US manufacturing sector expanded at a slower pace in October, a preliminary gauge by Markit Economics showed on Thursday, dragged by output and new order growth both easing, while new export sales rose the least since July. However, the pace of expansion remains robust and job creation continued to steadily improve.

Pivot points

According to Binary Tribune’s daily analysis, West Texas Intermediate December futures’ central pivot point is at $81.50. In case the contract breaches the first resistance level at $82.96, it may test $83.82. Should the second key resistance be broken, the US benchmark may attempt to advance to $85.28.

If the contract manages to breach the first key support at $80.64, it might come to test $79.18. With this second key support broken, movement to the downside could continue to $78.32.

Meanwhile, December Brent’s central pivot point is projected at $86.05. The contract will see its first resistance level at $87.97. If breached, it may rise and test $89.12. In case the second key resistance is broken, the European crude benchmark may attempt to advance $91.04.

If Brent manages to penetrate the first key support at $84.90, it could continue down to test $82.98. With the second support broken, downside movement may extend to $81.83 per barrel.