Crude oil trading outlook: futures drop on Japan recession, OPEC eyed

Crude oil futures slid on Monday as Japan unexpectedly entered recession, dealing a yet another heavy blow to global oil demand outlook. Market players eyed diplomacy developments within OPEC but a production cut remained unlikely.

On the New York Mercantile Exchange, WTI crude for delivery in January slid 1.25% to $74.87 per barrel by 8:17 GMT, having shifted in a daily range of $76.16-$74.83 a barrel. The US crude benchmark jumped 2.24% on Friday, the most since early-September, but still marked its seventh straight weekly decline, the longest losing stretch since March 1986.

Meanwhile on the ICE, Brent for delivery in the same month fell 1.55% to $78.18 a barrel. Prices shifted in a daily range of $79.60-$78.16 a barrel. The European crude benchmark surged 2.48% on Friday to $79.41. Brent traded at a premium of $3.31 to its US counterpart, down from Fridays close at $3.59.

The oil market received a boost on Friday amid speculations that OPEC members have intensified diplomatic talks to address the recent price rout. Libyas Prime Minister Abdullah al-Thani and Iraqi President Fouad Masoum met separately with Saudi Arabia officials last week, while Venezuelas foreign minister held talks in Algeria and Qatar. Different OPEC representatives will continue to meet this week, but the groups leading producers are not expected to abandon their commitment to leave oil pricing subject only to market forces.

Ric Spooner, a chief strategist at CMC Markets in Sydney, said for Bloomberg: “It’s all about OPEC, that’s the reality at the moment. The market is really going to be focused on the outcome of the meeting. There doesn’t seem to be indications so far of a production cut.”

The International Energy Agency said last week that the oil market has entered a whole new era and the return to high prices was unlikely to happen soon, citing slowing Chinese growth and oversupply led by increasing US shale oil output.

The Paris-based agency said that oil demand is projected to fall 1% to 92.6 million barrels per day in the first quarter of 2015 on a quarterly basis, set to push prices even lower.

Backing that forecast, Japan slipped into recession after it posted a second consecutive quarter of economic contraction. According to a preliminary estimate, Japans economy shrank by an annualized 1.6% in the three months through September, confounding analysts estimates for a 2.1% growth. Moreover, the previous quarters 7.1% contraction was revised down to 7.3%.

Quarter-on-quarter, the worlds fourth-biggest crude oil importer saw its GDP growth fall 0.4%, following a downward-revised 1.9% contraction in the preceding period.

Tony Nunan, an oil risk manager at Tokyos Mitsubishi Corp, said for CNBC: “This is another knock on crude oil prices, another bearish factor. The downtrend is still alive until we get something that turns us around.”

Record US supplies

Meanwhile, the Energy Information Administration reported on Thursday that crude production in the United States surged to a record 9.063 million barrels per day in the week through November 7th, 91 000 bpd more than during the previous week.

Limited support was drawn as the EIA reported that US crude oil stockpiles unexpectedly fell by 1.7 million barrels to 378.5 million, defying analysts’ projections for a 1.1-million build. However, supplies at Cushing, Oklahoma, the biggest US storage hub and delivery point for NYMEX-traded contracts, rose by 1.7 million barrels to 22.5 million, the highest since May 16th.

Total motor gasoline inventories rose by 1.8 million barrels to 203.6 million, exceeding forecasts for a 0.35-million gain, while distillate fuel stockpiles, which include diesel and heating oil, dropped 2.8 million barrels, outperforming a projected 1.5-million decline.

An overall strong dollar also continued to weigh on the market. The US dollar index for settlement in December stood 0.03% higher at 87.620 at 8:10 GMT, having shifted in a daily range of 87.750 and 87.230. The US currency gauge fell 0.18% to 87.593 on Friday after it reached an intra-day high of 88.365, the highest since June 2010.

Pivot points

According to Binary Tribune’s daily analysis, West Texas Intermediate January futures’ central pivot point is at $75.10. In case the contract breaches the first resistance level at $76.99, it may rise to $78.15. Should the second key resistance be broken, the US benchmark may attempt to advance $80.04.

If the contract manages to breach the first key support $73.94, it might come to test $72.05. With this second key support broken, movement to the downside could continue to $70.89.

Meanwhile, January Brent’s central pivot point is projected at $78.64. The contract will see its first resistance level at $80.52. If breached, it may rise and test $81.63. In case the second key resistance is broken, the European crude benchmark may attempt to advance $83.51.

If Brent manages to penetrate the first key support at $77.53, it could continue down to test $75.65. With the second support broken, downside movement may extend to $74.54 per barrel.