Crude oil futures trading outlook: rout continues as US inventories seen rising

Both West Texas Intermediate and Brent crude fell for a fifth session, hitting lows not seen since April 2009, as speculations of rising US crude oil inventories exacerbated a global supply glut that slashed prices by almost a half in 2014. A strong dollar and slowing global business growth further weighed on the market.

US crude for delivery in February fell 1.46% to $47.23 per barrel by 8:02 GMT, having earlier fallen to $47.08 a barrel. The contract plunged 4.22% on Tuesday to $47.93, the lowest close since April 21st, 2009.

Meanwhile on the ICE, Brent for settlement in the same month fell 1.88% to $50.14 a barrel after it earlier slid to $49.92. The European benchmark crude dropped 3.78% to $51.10 yesterday, the lowest close since April 30th, 2009. Brent was at a premium of $2.91 to its US counterpart, down from Tuesdays settlement at $3.17.

Oil prices have fallen 10% this week as speculations for rising US oil inventories, coupled with muted global business growth in December added to demand worries. The Energy Information Administration is expected to report that US crude oil inventories rose by 700 000 barrels last week, while motor gasoline stockpiles likely surged by 4.5 million barrels and distillate fuel supplies rose by 2.13 million.

Data by industry group the American Petroleum Institute showed a 4-million-barrel decline in crude stockpiles on Tuesday. However, inventories at the Cushing, Oklahoma storage hub jumped by 482 000 barrels, while refined products registered hefty gains, with motor gasoline supplies surging by 6.9 million barrels, while distillate fuel stockpiles gained 9.1 million.

Global business growth slowed to the lowest rate in a year in December, according to JPMorgans Global All-Industry Output Index, produced in collaboration with Markit, as expansion in both manufacturing and services sectors eased.

Hong Sung Ki, a commodities analyst at Samsung Futures Inc. in Seoul, said for Bloomberg: “Demand continues to be weak to balance supplies. Demand isn’t something that can be recovered in the short term while things are not looking great for China, and Europe is expected to be hit harder by gloomy circumstances in Russia.”

OPEC policy

The Organization of the Petroleum Exporting Countries reached a collective decision at its November 27th meeting in Vienna to retain its current production pace and defend market share against rising US shale production, which has driven US crude output to the highest in more than three decades.

Some support was drawn after Saudi Arabia raised prices for delivering crude to Asian buyers, but the measure had little effect on the bearish trend as OPECs leading producers simultaneously raised prices for deliveries to Europe and the US.

Saudi Arabias King Abdullah said yesterday that oil markets are affected by many factors, mainly slow growth in the global economy, but expressed confidence that the situation will be managed with wisdom and experience, as it has been done in the past.

ANZ bank said in a note, cited by CNBC: “The risks to oil prices remain skewed to the downside in the near term. While we expect high-cost shale producers to be the first to cut production, this is unlikely to occur until the middle of 2015.”

Government data showed that Russia’s oil output jumped 0.3% to 10.667 million barrels per day in December, a post-Soviet record, while Iraq, OPEC’s second-biggest producer, shipped 2.94 million bpd last month, the most in three decades, Oil Ministry spokesman Asim Jihad said. Moreover, Iraq plans to further boost exports in January to 3.3 million barrels per day after it reached an accord with its semi-autonomous Kurdish region in December over oil exports through Turkey.

March of the dollar

A strong dollar also weighed on the market, with a gauge of the greenback against a basket of six major trading partners holding near the highest in nine years. The dollars rally was fueled mainly by a further weakening in the euro, which slumped amid fears of a Greek Eurozone-exit and as ECB President Mario Draghi said last week he couldnt rule out deflation in the euro area, sparking speculations about full-scale quantitative easing.

Market players eyed key economic data due later in the day, including minutes from FOMCs December meeting, to gauge demand prospects in Europe and the US, as well as the strength of the euro and the US dollar.

Pivot points

According to Binary Tribune’s daily analysis, West Texas Intermediate February futures’ central pivot point is at $48.62. In case the contract breaches the first resistance level at $49.68, it may rise to $51.44. Should the second key resistance be broken, the US benchmark may attempt to advance $52.50.

If the contract manages to breach the first key support at $46.86, it might come to test $45.80. With this second support broken, movement to the downside could continue to $44.04.

Meanwhile, February Brent’s central pivot point is projected at $51.74. The contract will see its first resistance level at $52.96. If breached, it may rise and test $54.82. In case the second key resistance is broken, the European crude benchmark may attempt to advance $56.04.

If Brent manages to penetrate the S1 level at $49.88, it could continue down to test $48.66. With the second support broken, downside movement may extend to $46.80 per barrel.