Crude oil trading outlook: futures steady after PBOC cuts rates, OPEC disagreements eyed

Both West Texas Intermediate and Brent crude were little changed after China surprisingly reduced its interest rates, before the long awaited OPEC meeting on Thursday this week. A strong dollar weighed on prices.

January US crude fell 0.03% to $76.49 per barrel by 09:18 GMT. Prices held in a daily range of $76.95-$76.32 a barrel. The contract rose 0.87% on Friday to $76.51, ending the week with a 0.29% gain.

Meanwhile on the ICE, Brent for delivery in the same month fell 0.10% to $80.28 a barrel, having shifted in a daily range between $80.85 and $80.28. The European crude benchmark gained 1.30% on Friday to $80.36, settling at a premium of $3.85 to WTI. The gap narrowed to $3.79 on Monday.

The Organization of the Petroleum Exporting Countries is divided on whether to lower production rates or not. Smaller producers, such as Venezuela and Ecuador, would like to reduce production and thus support prices. However, bigger exporters may vote against it.

There were speculations that Saudi Arabia wants to keep prices falling in order to increase, or at least sustain, its global market share. Thomas Friedman, columnist at the New York Times, even said that a global oil war under way is putting the United States and Saudi Arabia on one side against Russia and Iran on the other.

Despite the three-day gains, Brent crude futures could fall to $60, if there is not a significant cut in production, said Daniel Bathe of Lupus alpha Commodity Invest Fund. China, the second largest oil consumer, reduced lending costs for the first time since 2012 in an attempt to boosts its economy.

Investors also disagreed on the possible outcomes from the OPEC meeting in Vienna this week. Some say that a production cut of around 500 000 bpd would not be sufficient and prices would fall further. Nicolas Robin, a commodities fund manager at Threadneedle, projected that a reduction of between 1 million and 1.5 million bpd would be enough to push prices above $85.

“The market really wants to see that OPEC is still functioning. If there is a small cut, with an accompanying statement of coherence from OPEC that presents a united front, and talks about seeing demand recovery, and some moderation of supply growth, then Brent could move up to $80-$90” said Tom Nelson, of Investec Global Energy Fund.

Pivot Points

According to Binary Tribune’s daily analysis, West Texas Intermediate January futures’ central pivot point is at $76.65. In case the contract breaches the first resistance level at $77.69, it may rise to $78.86. Should the second key resistance be broken, the US benchmark may attempt to advance $79.90.

If the contract manages to breach the first key support $75.48, it might come to test $74.44. With this second key support broken, movement to the downside could continue to $73.27.

Meanwhile, January Brent’s central pivot point is projected at $80.35. The contract will see its first resistance level at $81.62. If breached, it may rise and test $82.89. In case the second key resistance is broken, the European crude benchmark may attempt to advance $84.16.

If Brent manages to penetrate the first key support at $79.08, it could continue down to test $77.81. With the second support broken, downside movement may extend to $76.54 per barrel.