Crude oil futures trading outlook: WTI swings on supplies, Iran production

West Texas Intermediate crude shifted between gains and losses, while Brent was steady above $61, as investors weighed record high US production and signs that Iran wont cut output against an upbeat US economic outlook and as companies around the world halted investment plans.

US crude for delivery in February was down 0.33% on the day at $56.60 per barrel at 8:18 GMT, having shifted in a daily range of $57.22-$56.11. The contract added 0.94% on Wednesday to settle at $56.79, its first daily advance since December 9th.

Meanwhile on the ICE, Brent for delivery in the same month stood 0.10% lower at $61.12 a barrel. Prices ranged between $61.54 and $60.75 during the day. The European crude benchmark gained 1.95% yesterday to close at $61.18, at premium of $4.39 to its US counterpart. This was the contracts most significant daily advance since December 1st. The gap widened to $4.52 on Thursday.

The Energy Information Administration reported yesterday that US crude oil inventories fell by 0.847 million barrels in the week ended December 12th, helping WTI regain some of the lost ground. However, supplies at the Cusihng, Oklahoma storage hub surged by 2.92 million barrels to 27.8 million, the highest since March.

Moreover, US crude production inched up to 9.137 million barrels per day from 9.118 million a week earlier, hitting a new record for weekly data spanning back to January 1983. Refineries operated at 93.5% of their operable capacity, slowing down from 95.4% during the previous week.

Total motor gasoline inventories surged by 5.250 million barrels last week to 222.0 million, exceeding analysts’ projections for a jump to 1.780 million. Distillate fuel supplies declined by 0.207 million barrels to 121.5 million, beating estimates for a 0.340-million jump.

Global supplies

Global supply-demand imbalance concerns were further exacerbated following signs that Iran is joining other OPEC producers in refusing to let go of market share, reinforcing the groups decision that was reached at a November 27 meeting not to scale back production.

Iranian Oil Minister Bijan Namdar Zanganeh said that Iran wont lose market share under any conditions, given the restriction of its exports in recent years due to Western sanctions regarding its nuclear program.

Meanwhile, Iran was reported to be offering shipments to Asia at the largest discount in 14 years, following lead producer Saudi Arabia’s move to slash price differentials.

National Iranian Oil Co. will deliver light crude at $1.80 a barrel below a regional benchmark in January, Bloomberg reported, compared to December’s premium of $0.13.

This added to oversupply worries after Russian Energy Minister Alexander Novak said earlier in the week that Russia will keep its output policy unchanged in 2015, reiterating comments made on November 28th that the world’s largest producer won’t scale back output and that prices will recover in the medium term. The country’s production will be close to this year’s 10.6 million barrels per day, Minister Novak said.

Separately, Kuwait’s oil minister had said there were 1.8 million barrels a day of excess oil in the market and prices could recover in the second half of 2015.

Investments scaled back

Support was drawn as the price rout forced companies to cut upstream investments. CNBC reported that Marathon Oil cut 2015 capital expenditures by 20%, while Chevron put on hold plans to drill in the Beaufort Sea in Canadas Arctic. Canadian producers acted in a similar matter, with Penn West Petroleum, Husky Energy and MEG Energy all trimming capital spending.

US economic recovery

Albeit boosting the dollar, and thus weighing on dollar-denominated commodities, Fed comments backing an interest rate hike in 2015 reinforced the view of a robustly recovering US economy, which implies higher oil demand in the long-term.

Fed Chairwoman Janet Yellen told reporters after FOMCs last meeting for the year that the central bank will likely hold rates near zero at least through Q1 2015, which analysts interpreted as a hike in the second half of the year. She also laid out the economic objectives that need to be achieved and that the rate increase will be gradual, with borrowing costs expected to reach “normal” levels probably not earlier than 2017.

“By the time of liftoff, participants expect to see some further decline in the unemployment rate and additional improvement in labor-market conditions,” Yellen said. “They also expect core inflation to be running near current levels and that overall inflation will rise back toward their 2 percent goal.”

Pivot points

According to Binary Tribune’s daily analysis, West Texas Intermediate February futures’ central pivot point is at $56.89. In case the contract breaches the first resistance level at $59.17, it may rise to $61.56. Should the second key resistance be broken, the US benchmark may attempt to advance $63.84.

If the contract manages to breach the first key support $54.50, it might come to test $52.22. With this second key support broken, movement to the downside could continue to $49.83.

Meanwhile, February Brent’s central pivot point is projected at $61.10. The contract will see its first resistance level at $63.48. If breached, it may rise and test $65.79. In case the second key resistance is broken, the European crude benchmark may attempt to advance $68.17.

If Brent manages to penetrate the first key support at $58.79, it could continue down to test $56.41. With the second support broken, downside movement may extend to $54.10 per barrel.