Crude oil futures weekly recap: January 19 – January 23

West Texas Intermediate capped an eight weekly decline in nine on Friday as US crude oil inventories surged by the most in 14 years, exacerbating concerns of a global supply glut, while initial speculations that the death of Saudi Arabias King Abdullah may cause a shift in the kingdoms oil policy dissipated. A strong dollar and a further drop in the number of US rigs drilling for oil laid additional pressure.

US crude for delivery in March fell 1.55% yesterday to settle the week 7.2% lower at $45.59, the lowest close since March 11, 2009.

Meanwhile on the ICE, Brent for settlement in the same month rose 0.56% to $48.79, settling the week 2.8% lower, a ninth straight weekly decline. The European benchmark crude closed at a premium of $3.20 to its US counterpart, up from $2.21 on Thursday and $1.04 a week earlier.

The oil market initially rallied on Friday on speculations that the death of King Abdullah of Saudi Arabia may lead to changes in the countrys oil policy as power is transferred to his successor Crown Prince Salman Bin Abdulaziz Al Saud. However, known for defending of national interests, King Salman is unlikely to adopt any changes in the policy of the worlds biggest crude exporter.

A key indicator for a possible change in stance will be whether Oil Minister Ali al-Naimi, who has driven decision-making since 1995, keeps his current position. Al-Naimi 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. However, state-run Saudi Press Agency said that he will retain his post.

Saudi Prince Alwaleed Bin Talal Al Saud said that Saudi Arabia will not cut production as the gap will be filled by other producers. Commerzbank AG, BNP Paribas SA and Bank of America Corp predicted the kingdoms stance will remain unchanged.

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 nation’s 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 shouldnt feel obliged to reduce its own market share in order to stabilize the market.

US output

Data by the Energy Information Administration showed on Thursday 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 nation’s 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. This was the biggest weekly gain since March 2001. 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.

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.

Data by oil services firm Baker Hughes Inc. showed that the number of US rigs drilling for oil slid by 49 to 1 317 in a seventh week of declines.

Dollar

A stronger dollar also weighed on the market. The greenback surged to the highest in more than 11 years against the euro after the ECB introduced a bond-buying program of 60 billion euros per month aimed at fighting deflation and spurring growth within the euro region.

The US dollar index for settlement in March rose 0.73% to 95.053 on Friday, having earlier risen to a new 12-year high of 95.775. The US currency gauge climbed 2.3% this week, a sixth straight weekly gain. A stronger greenback makes dollar-denominated commodities more expensive for holders of foreign currencies and curbs their appeal as an alternative investment, and vice versa.

Some support was drawn as the National Association of Realtors reported that sales of previously built homes rose as expected by 2.4% in December, after dropping 6.3% in November, which pointed to a recovering housing market.

However, a weaker economic outlook for China, the worlds second-biggest oil consumer, kept positive sentiment limited. The Chinese economy expanded by a better-than-expected 7.3% in the fourth quarter, but full-year growth was pushed down to 7.4%, the lowest since 1990.

Preliminary data on Friday showed that Chinas manufacturing sector contracted slower than expected in January, but still remained below the level 50 threshold for a second consecutive month. The HSBC Flash China Manufacturing PMI rose to 49.8 from December’s 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. Today’s 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.”

Pivot points

According to Binary Tribune’s daily analysis for Monday, West Texas Intermediate March futures’ central pivot point is at $46.19. In case the contract breaches the first resistance level at $47.16, it may rise to $48.74. Should the second key resistance be broken, the US benchmark may attempt to advance $49.71.

If the contract manages to breach the first key support at $44.61, it might come to test $43.64. With this second support broken, movement to the downside could continue to $42.06.

Meanwhile, March Brent’s central pivot point is projected at $49.05. The contract will see its first resistance level at $49.54. If breached, it may rise and test $50.30. In case the second key resistance is broken, the European crude benchmark may attempt to advance $50.79.

If Brent manages to penetrate the S1 level at $48.29, it could continue down to test $47.80. With the second support broken, downside movement may extend to $47.04 per barrel.