Crude oil trading outlook: futures rise as Saudi king’s death triggers oil policy speculations

Both West Texas Intermediate and Brent crude rose on Friday after the death of King Abdullah of Saudi Arabia spurred uncertainty whether the worlds biggest crude exporter will retain its current supply policy under the rule of his successor King Salman. Better-than-expected manufacturing data from China also provided some support but gains were capped by a strong dollar and a hefty jump in US crude oil inventories.

US crude for delivery in March traded 0.93% higher at $46.74 per barrel on the New York Mercantile Exchange at 9:38 GMT, having earlier risen to $47.76. The contract slid 3.08% yesterday to $46.31.

Meanwhile on the ICE, Brent for settlement in the same month stood at $49.21 per barrel, up 1.42% for the day, having ranged between $49.80 and $48.75 during the day. The European benchmark crude fell 1.04% on Thursday to $48.52 per barrel, settling at a premium of $2.21 to its US counterpart. The gap widened to $2.47 on Friday.

King Abdullah died early on Friday, sending oil prices higher in Asian trading, as investors speculated whether Crown Prince Salman bin Abdulaziz, the thrones successor, will retain the kingdoms current oil policy, which has driven the market to the lowest in six years. A key indicator for a possible change in stance will be whether Oil Minister Ali al-Naimi, who has driven decision-making since 1995, retains his current position.

Al-Naimi, who turns 80 this year, has said he would like to devote more time on his other job as chairman of the science and technology university named after the deceased monarch.

John Kilduff, partner at Again Capital LLC in New York, said for CNBC: “The fear of the unknown is going to be supportive to crude oil prices. King Abdullah was the architect of the current strategy to keep production high and force out smaller players instead of cutting.” He added that the new monarch was known for defending the interests of his country and is expected to keep production high.

Oil prices fell by almost 50% last year and extended the drop into 2015 as OPEC reached a collective decision on November 27th in Vienna not to reduce its production quota, resisting calls from smaller members to do so in a push to curb US shale production that boosted the nations crude output to the highest in more than three decades.

OPEC officials have attributed the price rout to rising supplies outside the group, saying that OPEC bears no responsibility and therefore shouldn’t feel obliged to reduce its own market share in order to stabilize the market.

US inventories

Data by the Energy Information Administration showed yesterday that US producers pumped 9.186 million barrels per day of crude in the seven days through January 16th, compared to 9.192 million a week earlier which was the highest on weekly statistics dating back to January 1983.

The nations crude oil inventories surged by 10.07 million barrels last week to 397.9 million, exceeding analysts projections for a jump of 2.62 million. Supplies at the Cushing, Oklahoma, storage hub rose for another week to 36.8 million barrels from 33.9 million a week earlier.

Refinery utilization rates slid to 85.5% from 91.0% during the previous period, with gasoline production increasing to 9.2 million bpd, while distillate fuel output dropped to average 4.8 million barrels per day. Crude imports slid 274 000 barrels per day to 7.218 million, while the four-week average of inbound shipments was 7.157 million, 4.2% below year-ago levels.

The report also showed that total motor gasoline inventories rose by 0.588 million barrels to 240.9 million, below an expected jump of 1.3 million barrels, while distillate fuel stockpiles fell by 3.27 million barrels to 136.6 million, defying projection for an increase by 0.25 million.

Manufacturing data

Better-than-expected preliminary manufacturing data from China also gave some support, although the sector remained in the contraction zone for a second month. The HSBC Flash China Manufacturing PMI rose to 49.8 from Decembers final reading of 49.6, while the Flash China Manufacturing Output Index hit a three-month high of 50.1 from 49.9 in December.

Hongbin Qu, Chief Economist, China & Co-Head of Asian Economic Research at HSBC commented on the report: “Domestic demand improved marginally while external demand remained solid. The labour market weakened and prices fell further. Todays data suggest that the manufacturing slowdown is still ongoing amidst weak domestic demand. More monetary and fiscal easing measures will be needed to support growth in the coming months.”

Japan also marked an improvement from a month earlier and factory activity in the Eurozone improved slightly as well, with overall business growth being pushed above analysts expectations led by a better-than-expected expansion in the services sector.

Market players now eyed todays housing data from the US, with existing home sales expected to have jumped by 2.4% in December from a month earlier.

Pivot points

According to Binary Tribune’s daily analysis, West Texas Intermediate March futures’ central pivot point is at $47.09. In case the contract breaches the first resistance level at $48.31, it may rise to $50.31. Should the second key resistance be broken, the US benchmark may attempt to advance $51.53.

If the contract manages to breach the first key support at $45.09, it might come to test $43.87. With this second support broken, movement to the downside could continue to $41.87.

Meanwhile, March Brent’s central pivot point is projected at $49.00. The contract will see its first resistance level at $49.97. If breached, it may rise and test $51.43. In case the second key resistance is broken, the European crude benchmark may attempt to advance $52.40.

If Brent manages to penetrate the S1 level at $47.54, it could continue down to test $46.57. With the second support broken, downside movement may extend to $45.11 per barrel.