Crude oil trading outlook: futures fall after brief rebound

Brent and West Texas Intermediate fell on Tuesday, losing a piece of the gained ground on Monday as investors entertained the idea of OPECs commitment to let the oil market balance itself.

January US crude fell by 0.49% on Tuesday to $68.66 per barrel by 07:53 GMT. Prices held in a daily range between $69.32 and $68.26 a barrel. The contract settled 4.31% higher on Monday at $69.00, its biggest one-day rally since August 2012, having earlier fallen to $63.72 a barrel, the lowest since July 2009.

Meanwhile on the ICE, Brent for delivery in the same month fell 0.43% to $72.23 a barrel, having shifted in a daily range between $72.71 and $71.84. The European crude benchmark gained 3.41% yesterday to $72.54, its first increase in six sessions, settling at a premium of $3.54 to WTI. The gap slightly widened to $3.57 on Tuesday. Prices slid to $67.53 yesterday, the lowest since October 2009.

Oil capped its fifth consecutive monthly loss, also the largest in six years, on Friday to hit a nearly 40% drop in the past five months in the longest streak of declines since the financial crisis in 2008.

“Saudi Arabia and OPEC no longer have the mechanism to balance markets from the supply side,” said Mark Keenan, head of commodities research Asia at Societe Generale, cited by CNBC.

OPEC targeted the US shale production as it said it will stay on the side lines and wait for the market to balance out itself. However, current prices do not ensure a significant drop in US shale output.

US oil producers can win a price war against some of the OPEC members that rely heavily on high oil prices to fund their government budgets, said Harold Hamm, CEO of Continental Resources. He added that companies will have to do some cut backs and thus slow production, but a drop in activity from Texas to North Dakota wont cause as much damage to the industry as many have projected.

Societe Generale predicted in an e-mailed report that Brent futures will be traded at $70 per barrel in 2015 and 2016, while WTI will be exchanged at $65 as the global market will still be oversupplied. The banks previous forecast was $20 higher than it is now.

Around 4% of US shale production requires a higher price than $80 per barrel to stay profitable, according to the International Energy Agency. Meanwhile, major production areas, like the Bakken formation, would still be cost-effective at below $42 a barrel. The agency also projected US supply to increase by nearly 1 million barrels a day in the next year.

Crude reserves

Last week the EIA said that US crude supplies jumped by 1.946 million barrels to 383.0 million last week, exceeding analysts’ projections for a 250 000-barrel increase. Inventories at the Cushing, Oklahoma storage hub rose by 1.4 million barrels to 24.6 million.

Domestic crude production surged to 9.077 million barrels per day from 9.004 million last week, the highest on record for weekly data dating back to January 1983. Refineries operated at 91.5% of their operable capacity, compared to 91.2% during the week ended November 14th.

Total motor gasoline supplies gained 1.825 million barrels to 206.4 million, exceeding analysts’ projections for a jump of 1.817 million. Distillate fuel inventories, which include diesel and heating oil, fell by 1.648 million barrels to 113.1 million, topping forecasts for a 0.550-million increase.

According to Bloomberg, the government agency will report tomorrow that crude inventories increased by 1.5 million barrels in the week ended November 28th.

Pivot Points

According to Binary Tribune’s daily analysis, West Texas Intermediate January futures’ central pivot point is at $67.42. In case the contract breaches the first resistance level at $71.12, it may rise to $73.24. Should the second key resistance be broken, the US benchmark may attempt to advance $76.94.

If the contract manages to breach the first key support $65.30, it might come to test $61.60. With this second key support broken, movement to the downside could continue to $59.48.

Meanwhile, January Brent’s central pivot point is projected at $71.03. The contract will see its first resistance level at $74.53. If breached, it may rise and test $76.52. In case the second key resistance is broken, the European crude benchmark may attempt to advance $80.02.

If Brent manages to penetrate the first key support at $69.04, it could continue down to test $65.54. With the second support broken, downside movement may extend to $63.55 per barrel.