Crude oil trading outlook: futures start the week with slight gains

Both WTI and Brent increased on Monday, despite the United Arab Emirates announcement that OPEC would not reduce its output even if prices go as low as $40 per barrel.

January US crude gained 0.59% on Monday to $58.15 per barrel by 08:00 GMT. Prices held in a daily range between $58.73 and $56.25 a barrel, its lowest since May 2009. The contract settled 3.57% lower on Friday at $57.81.

Meanwhile on the ICE, Brent for delivery in the same month edged up 0.57% to $62.20 a barrel, having shifted in a daily range between $62.95 and $60.28, also the lowest since May 2009. The European crude benchmark fell 2.87% on Friday to $61.85, with a premium of $4.04 to WTI. The gap slightly widened to $4.05 on Monday.

The market will balance itself out said U.A.E. Energy Minister Suhail Al-Mazrouei, adding that the Organization of Petroleum Exporting Countries, which account for around 40% of the worlds oil supply, would not consider holding an emergency meeting during the next three months. Venezuela and Algeria are supporting the idea of a group gathering before the official one on June 5, however, the countries have not requested such a meeting, said a foreign ministry official on December 12.

On its previous official meeting held on November 27 in Vienna, OPEC voted against a reduction in its 30-million-barrels-per-day production and thus did not provide any support for the already falling oil prices. The move has been seen as a counter measure against the US shale production, which is pumping at its fastest rate in 30 years.

“We’re not going to change our minds because the prices went to $60 or to $40,” the U.A.E.’s Mazrouei told Bloomberg at a conference in Dubai on Dec. 14. “We’re not targeting a price; the market will stabilize itself.”

Global oil demand will increase by 230 000 barrels a day in 2015, according to the International Energy Agency, down from its previous projection. Also the Paris-based agency predicted that supply will climb by 1.3 million per day outside the OPEC oraganisation.

This weeks expected strong US data may provide slight support for oil prices, which have fallen around 18% since OPEC resisted calls from Venezuela and other members to reduce production and thus defended its market share.

“Expectations for this months PMI are favorable which should prevent a further drop for the week. Provided manufacturing PMI figures are favorable, we expect to see a slight recovery to $61.81 for WTI Feb 15 and $63.26 for Brent Feb 15 for this week,” said Singapore-based Phillip Futures on Monday cited by CNBC.

However, prices are expected to fall further if the market maintains its oversupplied state, which is more than likely with OPECs top 3 producers offering its crude at discounted prices in Asia and expectations of growth in the US shale output.

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.

Pivot Points

According to Binary Tribune’s daily analysis, West Texas Intermediate January futures’ central pivot point is at $58.26. In case the contract breaches the first resistance level at $59.12, it may rise to $60.43. Should the second key resistance be broken, the US benchmark may attempt to advance $61.29.

If the contract manages to breach the first key support $56.95, it might come to test $56.09. With this second key support broken, movement to the downside could continue to $54.78.

Meanwhile, January Brent’s central pivot point is projected at $62.29. The contract will see its first resistance level at $63.22. If breached, it may rise and test $64.60. In case the second key resistance is broken, the European crude benchmark may attempt to advance $65.53.

If Brent manages to penetrate the first key support at $60.91, it could continue down to test $59.98. With the second support broken, downside movement may extend to $58.60 per barrel.