Both West Texas Intermediate and Brent crude benchmarks were on track to post their biggest monthly decline since May 2012 pressured by a rallying US dollar and as OPEC boosted its output in October, a Bloomberg survey showed.
US crude for settlement in December fell 0.57% to $80.66 per barrel by 8:18 GMT, having shifted in a daily range of $81.27-$80.46. The US crude benchmark slid 1.3% on Thursday to $81.12, snapping two days of gains. Prices have fallen around 11.6% so far this month, the most since May 2012.
Meanwhile on the ICE, Brent for settlement in the same month slid 0.82% to $85.53 a barrel and held in a daily range of $86.25-$85.40. The contract dropped 1% on Thursday to $86.24 a barrel and is down 9.6% this month, also the worst performance since May 2012. Brent traded at a premium of $4.87 to its US counterpart, down from its settlement at $5.12.
The oil market reinforced its bearish stance after a Bloomberg survey showed that the Organization of the Petroleum Exporting Countries boosted its crude oil output in October, reflecting the groups reluctance to lose market share and its ability to cope with lower prices.
OPEC pumped 30.974 million barrels of oil per day in October, Bloomberg reported, marking a 53 000-bpd increase from a month earlier, led by gains in Saudi Arabia, Iraq and Libya. Septembers figure was revised down by 14 000 barrels per day to an average of 30.921 million barrels per day.
Will Yun, a commodities analyst at Hyundai Futures Inc. in Seoul, said for Bloomberg: “OPEC members are keeping prices low by raising their production as a way to remain competitive against the expanding output in the U.S.”
Record high US output
The latest figures fanned well-based speculations for a battle over market share, possibly trying to force part of US shale output out of the market. The Energy Information Administration reported on Wednesday that US crude production surged to 8.97 million barrels per day, the most in more than three decades, while US crude imports declined. On a monthly basis, production was at its highest in 28 years.
Bloombergs survey showed that Saudi Arabia, OPECs leading producer, boosted its output by 100 000 bpd to 9.75 million in October. This followed a rise in output in September, which itself offset a drop in domestic and export supplies, with the difference between going into storage.
Iraq bolstered its production pace by 150 000 barrels per day to 3.3 million, the most since May, while Libya pumped 850 000 bpd, up 70 000 barrels a day from a month earlier and sixth straight monthly increase. This was also the African countrys highest level of output since June last year.
Partially offsetting the threes increases was a 170 000-bpd drop in Angolan production to 1.7 million bpd. However, officials predicted the countrys output will jump to 2 million bpd next year.
OPEC will hold a scheduled meeting in Vienna on November 27th where it will discuss its production policy. However, comments by OPEC secretary general Abdullah al-Badri reinforced speculations that the group will most likely stick to its previous production target of 30 million barrels per day.
QE conclusion, strong dollar
Oil prices were further pressured by a strong dollar which rallied after the Federal Reserve ended its Quantitative Easing program and said it could raise interest rates faster than expected, given that the labor market improves at an accelerated pace and prices retain stability.
Policy makers said the US labor market has strengthened enough to digest the end of Fed’s bond purchases, citing solid jobs growth and a lower unemployment rate since their last meeting in September. Non-farm payrolls have averaged 227 000 this year, headed for the best performance in 15 years, while the jobless rate fell to 5.9% in September, which is only 0.4% above the top of the range which the central bank considers as full employment.
FOMC members said that interest rates could be hiked sooner than otherwise, if Fed’s goals of full employment and stable prices are reached faster than expected, but stated that the opposite scenario can occur as well.
The greenback drew further support after the Commerce Department’s Bureau of Economic Analysis reported yesterday that the US economy grew by an annualized 3.5% in the third quarter, exceeding analysts projections for a 3% growth. The US economy posted its best six-month performance since the second half of 2003 after a 4.6% expansion in the second quarter.
A separate report showed that the number of Americans who filed for initial unemployment benefits in the week through October 25th rose by 3 000 to 287 000, slightly short of analysts’ projections for a drop to 283 000. However, the four-week average of jobless claims, which strips out weekly volatility, slid to 281 000 from the preceding week’s upward-revised 281 250, hitting the lowest level since may 2000.
The US dollar index, which measures the greenback’s performance against a basket of six major trading peers, was near the highest since 2010. The December contract gained 0.54% to 86.695 by 8:34 GMT, having earlier risen to 86.830, an inch below October 3rds four-year high of 86.870. The US currency gauge rose 0.23% on Thursday to 86.232.
Although a brighter economic outlook supports oil on the demand side in the long-term, a stronger dollar has an immediate drag effect as it makes dollar-denominated commodities more expensive for foreign currency holders and limits their appeal as an alternative investment.
Pivot points
According to Binary Tribune’s daily analysis, West Texas Intermediate December futures’ central pivot point is at $81.31. In case the contract breaches the first resistance level at $81.90, it may rise to $82.68. Should the second key resistance be broken, the US benchmark may attempt to advance $83.27.
If the contract manages to breach the first key support $80.53, it might come to test $79.94. With this second key support broken, movement to the downside could continue to $79.16.
Meanwhile, December Brent’s central pivot point is projected at $86.35. The contract will see its first resistance level at $86.99. If breached, it may rise and test $87.74. In case the second key resistance is broken, the European crude benchmark may attempt to advance $88.38.
If Brent manages to penetrate the first key support at $85.60, it could continue down to test $84.96. With the second support broken, downside movement may extend to $84.21 per barrel.
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