Crude oil trading outlook: futures drop a second day with OPEC in focus

West Texas Intermediate and Brent crude fell for a second day as oil prices failed to find a stable floor before OPEC members convene next week to discuss the groups production policy. Expectations for a drop in US crude supplies last week provided some support.

January US crude fell 0.11% to $75.58 per barrel by 9:54 GMT on the New York Mercantile Exchange, having shifted in a narrow daily range of $75.71-$75.20. The contract slid 0.21% to $75.66 on Monday.

Meanwhile on the ICE, Brent for settlement in the same month slid 0.34% to $79.04 a barrel. Prices ranged between days high and low of $79.28 and $78.85 a barrel, respectively. The European benchmark crude fell 0.13% to $79.31 a barrel yesterday. Brent was at a premium of $3.46 to its US counterpart, down from Mondays close at $3.65.

Venezuela, one of the OPEC members which have been calling for an extraordinary group meeting to address the recent oil price rout, met with Russia to discuss ways to support the market. Venezuelas Foreign Minister Rafael Ramirez examined with Russian Energy Minister Alexander Novak on Monday “the need to coordinate actions in defense of oil prices”.

Meanwhile, the head of Russian state-owned oil giant Rosneft, Igor Sechin, is expected to attend OPECs November 27 meeting, with officials saying that he would fly to Vienna two days earlier.

Venezuelan President Nicolas Maduro said on Monday that a special global meeting is being planned “very soon”, while Iranian Oil Minister Bijan Namdar Zanganeh is scheduled to visit the United Arab Emirates this week.

However, despite the pickup in diplomatic activity, investors broadly assumed that OPEC is unlikely to slash its production target next week, leaving the market without a significant floor.

Goldman Sachs analysts said that although the current bearish market raises the likelihood of a production cut, trimming output by more than 500 000 bpd would require by OPEC further reductions in 2016 and beyond. This in turn would allow US shale producers to gain market share, the investment bank said.

“Until we have firm news from OPEC, oil prices can go down further,” said for CNBC Ken Hasegawa, commodity sales manager of Newedge Japan. “We cannot ignore the comments from Venezuela and Russia. But the most important factor is what steps OPEC and especially Saudi Arabia decides to take.”

US supplies, economic data

Some support might be drawn by this weeks US supply data, with analysts estimates pointing to a 1-1.2-million-barrel decline in US crude oil inventories in the seven days ended November 14th. An even closer attention will be paid to the pace of US crude oil production, which reached a record level in the preceding week.

However, readings largely in line with projections are expected to be overshadowed by any news of diplomatic activity within the Organization of the Petroleum Exporting Countries.

Industry group the American Petroleum Institute will release its separate inventory report at 21:30 GMT today.

Market players will also be keeping an eye on upcoming economic data from major oil consumers, including economic sentiment within the Eurozone, inflation and housing data from the US, as well as preliminary manufacturing activity readings from Europe, China, Japan and the United States.

A report by the Federal Reserve showed yesterday that industrial output in the US unexpectedly contracted by 0.1% in October, rebutting projections for a 0.2% jump. While manufacturing production rose modestly, by 0.2% as opposed to projections of 0.3%, manufacturing output in the New York region rebounded, albeit trailing expectations.

Oils demand prospects received a heavy blow earlier on Monday after Japan slipped into recession following a second consecutive quarter of economic contraction. According to a preliminary estimate, Japan’s economy shrank by an annualized 1.6% in the three months through September, confounding analysts’ estimates for a 2.1% growth. Moreover, the previous quarter’s 7.1% contraction was revised down to 7.3%.

Quarter-on-quarter, the world’s third-biggest oil consumer saw its GDP growth fall 0.4%, following a downward-revised 1.9% contraction in the preceding period.

Pivot points

According to Binary Tribune’s daily analysis, West Texas Intermediate January futures’ central pivot point is at $75.52. In case the contract breaches the first resistance level at $76.30, it may rise to $76.93. Should the second key resistance be broken, the US benchmark may attempt to advance $77.71.

If the contract manages to breach the first key support $74.89, it might come to test $74.11. With this second key support broken, movement to the downside could continue to $73.48.

Meanwhile, January Brent’s central pivot point is projected at $78.95. The contract will see its first resistance level at $79.96. If breached, it may rise and test $80.61. In case the second key resistance is broken, the European crude benchmark may attempt to advance $81.62.

If Brent manages to penetrate the first key support at $78.30, it could continue down to test $77.29. With the second support broken, downside movement may extend to $76.64 per barrel.