Crude oil trading outlook: futures hold near 6-year lows despite OPEC comments

West Texas Intermediate and Brent crude extended weekly losses as OPEC comments that prices may have bottomed out failed to shift focus from the imminent signs of a global supply overhang. Expectations for a jump in US crude inventories to a record level further dragged on prices.

US crude for delivery in March fell 0.24% to $45.04 per barrel by 7:50 GMT, having shifted in a daily range of $45.35-$44.88. The contract slid 0.97% to $45.15 yesterday, the lowest close since March 2009, after it earlier slid to a near 6-year low of $44.35. Prices fell 7.2% last week, an eight weekly decline in nine.

Meanwhile on the ICE, Brent for delivery in the same month traded at $48.04 a barrel, down 0.25% on the day, having ranged between $48.38 and $47.79. The European benchmark crude fell 1.29% on Monday to $48.16, settling at a premium of $3.01 to its US counterpart. The gap was at $3.00 on Tuesday.

OPEC Secretary-General Abdalla El-Badri said that oil may have reached a bottom and warned that prices may spike to $200 per barrel if long-term investment in new production is cut. He didnt offer a time frame for when crude could reach $200 and said that the market will be balanced out by a reduction in supply, instead of a pickup in demand.

However, these comments failed to spark too much of enthusiasm among investors as the markets broad focus remained shifted toward the more immediate global supply-demand imbalance and OPECs determination not to cut output in order to protect its market share.

US supplies

US crude production surged to 9.192 million barrels per day in the seven days through January 9th, the highest on weekly data spanning back to January 1983. US crude supplies increased by 10.07 million barrels in the week ended January 16th to 397.9 million, the biggest weekly jump since March 2001.

Inventories are projected to have risen by another 4.25 million barrels in the week ended January 23rd, this weeks EIA report will show. If confirmed, this would bring stockpiles to 402.15 million barrels, the highest on statistics dating back to August 1982. Motor gasoline inventories likely rose by 1.35 million barrels, while distillate fuel supplies may have fallen by 1.5 million.

David Lennox, a resource analyst at Fat Prophets in Sydney, said for Bloomberg: “Supply is still the issue, we need to see that cut back. The potential is still for the downside in the near term because of that need to see a reduction in current production. Demand doesnt improve rapidly on the falling price, it does take a while to kick in.”

Industry group the American Petroleum Institute will release its separate private supply data later today. However, the trading associations numbers are deemed less reliable than EIAs report as they are based on voluntary information from operators of refiners, pipelines and bulk terminals, while the government requires reports to be filed with the Energy Information Administration.

Market players now eyed key economic data from the US due later today, as well as the outcome of FOMCs two-day policy meeting that concludes on Wednesday to gauge the US economys recovery pace and the dollars valuation outlook.

Durable goods orders likely rose in December after contracting a month earlier, while sales of newly built homes probably reached an annualized 450 000 units. Consumer confidence picked up in January, the Conference Board is expected to report, with the corresponding index anticipated to come in at 95.1 from 92.6 in December.

The US dollar held near the highest in more than a decade against a basket of six major trading partners, weighing down on dollar-denominated commodities such as oil. The US dollar index for settlement in March was up 0.05% at 95.165 at 7:50 GMT, having ranged between 95.325 and 95.150 during the day. The contract rose 0.07% to 95.115 after it earlier hit a multi-year high of 95.850.

Pivot points

According to Binary Tribune’s daily analysis, West Texas Intermediate March futures’ central pivot point is at $45.30. In case the contract breaches the first resistance level at $46.26, it may rise to $47.36. Should the second key resistance be broken, the US benchmark may attempt to advance $48.32.

If the contract manages to breach the first key support at $44.20, it might come to test $43.24. With this second support broken, movement to the downside could continue to $42.14.

Meanwhile, March Brent’s central pivot point is projected at $48.34. The contract will see its first resistance level at $49.11. If breached, it may rise and test $50.06. In case the second key resistance is broken, the European crude benchmark may attempt to advance $50.83.

If Brent manages to penetrate the S1 level at $47.39, it could continue down to test $46.62. With the second support broken, downside movement may extend to $45.67 per barrel.