Crude oil weekly recap, December 8 – December 12

Both WTI and Brent futures decreased on Friday, marking four out of five trading sessions of declines during the week, as the oil market remained oversupplied on discounts from OPECs top three.

WTI crude for delivery in January on the New York Mercantile Exchange lost 3.57% on Friday to settle the week 12.20% lower at $59.17 a barrel, after prices climbed 1.22% on Tuesday, but could not offset the overall decrease. Meanwhile on the ICE, Brent January futures dropped 2.87% on Friday to close at $ 61.85 a barrel, registering a 10.45% weekly loss. January Brent’s premium to its US counterpart was $2.68.

Crude oil is headed for a sixth consecutive monthly loss, already down 16.21% since December 1, after the Organization of the Petroleum Exporting Countries voted against cuts in its production target of 30 million barrels a day during its official meeting in Vienna last month. For November crude oil settled 18.36% lower, its largest decline in six years. Meanwhile, Brent lost 14.73% through December 12, following the 19.89% decrease from last month.

“Why should we cut production?” said Saudi Arabian Oil Minister Ali Al-Naimi on Wednesday. “This is a market and I’m selling in a market. Why should I cut?” Mr. Al-Naimi believes that the market will balance itself, without reduction in OPEC’s production.

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. However, only 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.

OPEC, which provides around 40% on the world’s oil, projected on Wednesday that global demand for crude will decrease by around 300 000 barrels a day to 28.9 million in 2015, its lowest in more than ten years.

The group cut its projection of global demand, as Saudi Arabia, Iraq and Kuwait, the top 3 OPEC producers, offered its crude at a discounted price in Asia. Meanwhile, Iran did not announce its next months price list yet, but the country is expected to follow the leaders within the 12-member group.

However, producers located in the Middle East, including Iraq, Iran and Kuwait, usually trail Saudi Arabia’s 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, Nizar Al-Adsani, CEO of Kuwait’s national oil company, said on Tuesday.

Algeria and Venezuela may push for an emergency meeting to be scheduled early next year, before the group’s official gathering on June 5. Although it is unknown, if a meeting is actually held, whether Saudi Arabia would be convinced to cut production.

“Our position on OPEC is that they defend the fair price of our oil,” Venezuelas Foreign Minister Rafael Ramirez said on the Telesur network, cite by Bloomberg. “We don’t believe in the free market. We must make an effort to reduce overproduction of oil.”

The current price situation does not benefit everybody in group, as the smaller producers depend heavily on higher oil prices to fund their budgets.

“There is a price war within OPEC,” Abdul Mahdi, Iraq’s politician and economist, said in Baghdad at a parliamentary session broadcast on state-run television. “The market’s fundamentals have changed, with an extra 3 million barrels a day of crude entering the market at a time when growth in China and India has slowed.”

Crude Reserves

The Energy Information Administration reported on Wednesday that US crude oil inventories increased by 1.5 million barrels in the seven days through December 5th to 380.8 million, compared to analysts’ expectations for a 2.5-million-barrel drop. Stockpiles at the Cushing, Oklahoma storage hub edged up to 24.9 million barrels from 23.9 million a week earlier.

Refinery utilization picked up to 95.4% from 93.4% during the week through December 5th.

US crude production jumped to 9.118 million barrels per day from 9.083 million, reaching the highest level on recorded weekly data dating back to January 1983. Imports climbed to 7.668 million bpd, compared to the 7.303 bpd 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 8.2 million barrels to 216.8 million, while distillate fuel stockpiles, which include diesel and heating oil, surged by 5.6 million barrels to 121.8 million.

The agency also reduced its 2015 demand-growth forecast for a fourth time in five months. The EIA now expects that demand would increase by 230 000 barrels a day, while US shale production will continue to expand.

Pivot Points

According to Binary Tribune’s weekly analysis, West Texas Intermediate January futures’ central pivot point is at $60.25. In case the contract breaches the first resistance level at $63.10, it may rise to $68.40. Should the second key resistance be broken, the US benchmark may attempt to advance $71.25.

If the contract manages to breach the first key support $54.96, it might come to test $52.10. With this second key support broken, movement to the downside could continue to $46.80.

Meanwhile, January Brent’s central pivot point is projected at $63.99. The contract will see its first resistance level at $66.64. If breached, it may rise and test $71.43. In case the second key resistance is broken, the European crude benchmark may attempt to advance $74.08.

If Brent manages to penetrate the first key support at $59.20, it could continue down to test $56.55. With the second support broken, downside movement may extend to $51.76 per barrel.