Crude oil trading outlook: futures fall further after Morgan Stanley reduces projections

Both Brent and West Texas Intermediate started the new week by extending declines to trade near five-year lows as Morgan Stanley cut its forecast amid rising speculations of US production retaliation.

January US crude fell 0.96% on Monday to $65.21 per barrel by 08:01 GMT. Prices held in a daily range between $65.55 and $64.63 a barrel. The contract settled 1.45% lower on Friday at $65.84 and is currently trading 0.88% higher than its five-year low.

Meanwhile on the ICE, Brent for delivery in the same month dropped 1.11% to $68.30 a barrel, having shifted in a daily range between $68.79 and $67.73. The European crude benchmark fell 0.40% on Friday to $69.07, settling at a premium of $3.23 to WTI. The gap narrowed to $3.09 on Monday.

In a report, released Friday, Morgan Stanley reduced its 2015 Brent forecast from $98 per barrel to $70. For 2016 the bank projected contracts to be traded at $88, down from its previous prediction of $102. However, Morgan Stanley said prices could fall to as much as $43 per barrel in the second quarter of next year, when it is likely markets to reach “peak oversupply.”

“With OPEC on the sidelines, oil prices face their greatest threat since 2009, but we expect a volatile 2015 rather than a one-way trade,” Morgan Stanley said in a report.

After the official OPEC meeting in Vienna last month, when the 12-member group voted against reduction in output, both top two exporters took measures to ensure market oversupply. Saudi Arabia reduced the prices of crude that it sells in the US and Asia on Friday, while Iraq reached a deal with Kurdish officials to increase its monthly export.

CEO Said Sahnoun of Sonatrach, Algeria-owned energy producer, announced yesterday that the country will proceed with its plan to invest $90 billion in Algerias gas and oil industry, regardless of falling prices.

The move from the organization, responsible from around 40% of the worlds oil production, was seen from many as an action the protects its market share from the booming US production.

However, the US increased its functioning rigs to 1 575 through December 5 according to Baker Hughes. Despite projections of a slowdown in production, operations marked its first gain in three weeks as the mix of horizontal drilling and hydraulic fracturing have pushed US production at its fastest rate in more than three decades.

Crude Reserves

The Energy Information Administration reported on Wednesday that US crude oil inventories fell by 3.689 million barrels in the seven days through November 28th to 379.3 million, surpassing analysts’ expectations for a 1.75-million-barrel drop. Stockpiles at the Cushing, Oklahoma storage hub slid to 23.9 million barrels from 24.6 million a week earlier.

Refinery utilization picked up to 93.4% from 91.5% during the week through November 21st. Gasoline production decreased, while distillate fuel output increased, averaging 9.6 million and 5.0 million barrels per day, respectively.

However, this is as far as good news goes. US crude production jumped to 9.083 million barrels per day from 9.077 million, reaching the highest level on recorded weekly data dating back to January 1983. Imports slid to 7.303 million bpd, 170 000 bpd lower from a week earlier, while the four-week average of inbound shipments was 7.323 million bpd, 6.2% below year-ago levels.

Total motor gasoline inventories jumped by 2.143 million barrels to 208.6 million, exceeding analysts’ expectations for a 1.040-million jump. Distillate fuel stockpiles, which include diesel and heating oil, surged by 3.028 million barrels to 116.2 million, defying projections for a 180 000-barrel decline.

Pivot Points

According to Binary Tribune’s daily analysis, West Texas Intermediate January futures’ central pivot point is at $65.95. In case the contract breaches the first resistance level at $66.74, it may rise to $67.63. Should the second key resistance be broken, the US benchmark may attempt to advance $68.42.

If the contract manages to breach the first key support $65.06, it might come to test $64.27. With this second key support broken, movement to the downside could continue to $63.38.

Meanwhile, January Brent’s central pivot point is projected at $69.00. The contract will see its first resistance level at $69.89. If breached, it may rise and test $70.72. In case the second key resistance is broken, the European crude benchmark may attempt to advance $71.61.

If Brent manages to penetrate the first key support at $68.17, it could continue down to test $67.28. With the second support broken, downside movement may extend to $66.45 per barrel.