Crude oil trading outlook: futures extend losses to reach fresh lows on Asia discounts

Both Brent and West Texas Intermediate fell further and hit new five-year lows as Iraq also offered its crude at a discount in the Asian market, providing additional evidence that OPEC is defending its market share.

January US crude fell 0.82% on Tuesday to $62.53 per barrel by 07:51 GMT. Prices held in a daily range between $63.05 and $62.25 a barrel, its lowest since July 2009. The contract settled 4.24% lower on Monday at $63.05.

Meanwhile on the ICE, Brent for delivery in the same month dropped 1.25% to $65.36 a barrel, having shifted in a daily range between $66.15 and $65.29, its lowest since September 2009. The European crude benchmark fell 4.17% yesterday to $66.19, settling at a premium of $3.14 to WTI. The gap narrowed to $2.31 on Tuesday.

The move mimics Saudi Arabias actions on Friday, when the Organization of Petroleum Exporting Countries top producer reduced its crude prices in Asia by $2 to reach its lowest price in more than 14 years, according to a statement released by government-owned Saudi Arabian Oil.

Iraq, second-biggest producer within OPECs 12 members, offered its Basrah Light crude for $4 less to its lowest price in at least 11 years in Asia on Monday, bolstering speculations that OPECs top two are leading the charge to defend its market share and the rest may soon follow.

Producers located in the Middle East, including Iraq, Iran and Kuwait, usually trail Saudi Arabias movements when its comes to crude export prices.

Oil prices are expected to stay at about $65 a barrel during the next six or seven months, according to Nizar Al-Adsani, CEO of Kuwaits national oil company. Kuwait is the third-largest producer among the group which supplies around 40% of the worlds crude.

Last Thursday Iraq announced it had reached a deal with Kurdish authorities to increase exports through Turkey. Safeen Dizayee, a spokesman for the Kurdish Regional Government, said that OPEC’s second-biggest producer will start shipments, up to a maximum of 550 000 barrels a day, from northern Iraq to the Mediterranean port of Ceyhan, utilizing a pipeline owned by the Kurds.

“If you want to move product, you discount it,” David Lennox, a resource analyst at Fat Prophets in Sydney, said by phone today for Bloomberg. “That is going to continue. Until there are cuts to production, there could be more pain to come.”

It is still unknown how these OPEC actions will affect the US shale boom, with the industry operating at its highest rate in more than 30 years. Recent US forecasts projected that the three biggest US shale plays will continue to increase its production with a minimum of 100 000 barrels per day into January. Although, a lot of US oil companies are planning to significantly reduce spending for the next year.

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 $63.79. In case the contract breaches the first resistance level at $64.81, it may rise to $66.56. Should the second key resistance be broken, the US benchmark may attempt to advance $67.58.

If the contract manages to breach the first key support $62.04, it might come to test $61.02. With this second key support broken, movement to the downside could continue to $59.27.

Meanwhile, January Brent’s central pivot point is projected at $66.97. The contract will see its first resistance level at $68.01. If breached, it may rise and test $69.83. In case the second key resistance is broken, the European crude benchmark may attempt to advance $70.87.

If Brent manages to penetrate the first key support at $65.15, it could continue down to test $64.11. With the second support broken, downside movement may extend to $62.29 per barrel.