Crude oil trading outlook: futures inch up ahead of US data, OPEC eyed

Both West Texas Intermediate and Brent crude rose in early European trading on Tuesday ahead of supposedly upbeat US economic data that would brighten demand prospects in the worlds biggest consumer. Upside movement was capped as OPEC gave no signs of scaling back output, with Iraq joining other members in defending market share.

US crude for delivery in February rose 1.01% to $55.82 per barrel by 8:02 GMT, having shifted in a daily range of $56.85-$55.31 a barrel. The contract fell 3.27% on Monday to $55.26 after it surged 5.10% the previous session.

Meanwhile on the ICE, Brent for settlement in the same month gained 0.35% to $60.32 per barrel. Prices ranged between $60.86 and $60.06 during the day. The European benchmark crude fell 2.07% on Monday to $60.11, settling at a premium of $4.85 to its American counterpart. The gap narrowed to $4.50 on Tuesday.

Oil prices drew support before data that may show that economic growth in the US accelerated to a final annualized reading of 4.3% in the the third quarter, an upward revision from a preliminary estimate of 3.9%. Meanwhile, durable goods orders, which reflect the health of the countrys manufacturing sector and thus suggest the level of industrial demand for oil, likely grew by 3.0% in November, while a core measure probably rebounded to 1.1%.

In other reports, December consumer sentiment likely remained high but an inch lower, with the corresponding Thomson Reuters/University of Michigan index projected at 93.1 from 93.8 in November, while new home sales increased.

OPEC supplies

However, OPECs determination to maintain its current production level and not cede any market share kept upside movement capped. Mondays edition of the Saudi-owned al-Hayat newspaper quoted oil minister Ali Al-Naimi saying that his country is prepared to boost production and gain market share by meeting demands of new customers.

On Sunday, Al-Naimi said that the global supply glut that recently drove oil prices to the lowest in 5-1/2 years was created by the lack of cooperation from non-OPEC producers. The group will probably refrain from cutting output, even if non-member producers offer to pump less, Al-Naimi said, and expressed confidence that oil will rebound as reviving global economic growth will spur demand.

In the latest sign of group members joining Saudi Arabias side, Iraqi Oil Minister Adel Abdul Mahdi said that Iraq plans to raise production to 4 million barrels per day next year and that the groups November 27 decision to maintain output was part of an effort to maintain market share. Prices have fallen some 20% since then. This comes at a time of ever-growing US crude output, with the Energy Information Administration having reported that US producers pumped 9.137 million barrels of crude per day in the week ended December 12th, the highest on weekly data started in January 1983.

UAE Energy Minister Suhail Al Mazrouei said on Sunday that “irresponsible” production from outside OPEC is behind the fall in prices. “We call on all other producers to stop the increase” he said.

According to Mohammed Al Sada, Qatar’s energy minister, the market suffers from an excess supply of 2 million barrels per day. Oil prices have fallen more than 40% since a June peak amid concerns that a weaker global economy would not induce enough demand to absorb rising supplies.

Bank of America Merrill Lynch said in a research note, cited by CNBC: “Brent could drop below $60 per barrel over the next six months, and WTI could fall to $50, as global oil inventories build sharply from here. The faster the oil price drop, the larger the damage to the global oil industry. Oil could rebound sharply by the end of 2015.”

US supplies

Data by the Energy Information Administration showed last Wednesday that US crude oil inventories fell by 0.847 million barrels in the week ended December 12th, while supplies at the Cusihng, Oklahoma storage hub surged by 2.92 million barrels to 27.8 million, the highest since March.

This weeks report is expected to show that US crude stockpiles probably slid by 2.5 million barrels to 377.4 million in the week through December 19th.

Pivot points

According to Binary Tribune’s daily analysis, West Texas Intermediate February futures’ central pivot point is at $56.31. In case the contract breaches the first resistance level at $57.48, it may rise to $59.71. Should the second key resistance be broken, the US benchmark may attempt to advance $60.88.

If the contract manages to breach the first key support at $54.08, it might come to test $52.91. With this second support broken, movement to the downside could continue to $50.68.

Meanwhile, February Brent’s central pivot point is projected at $60.97. The contract will see its first resistance level at $62.11. If breached, it may rise and test $64.10. In case the second key resistance is broken, the European crude benchmark may attempt to advance $65.24.

If Brent manages to penetrate the S1 level at $58.98, it could continue down to test $57.84. With the second support broken, downside movement may extend to $55.85 per barrel.