Crude oil trading outlook: Brent hovers near 4-year low on oversupply, US inventory data eyed

Both West Texas Intermediate and Brent benchmark crudes fell on Wednesday and hovered near the lowest in years amid a strong dollar and expectations for a sixth straight weekly build in US crude supplies. Falling OPEC output in October provided some support, but only to a limited extent, as the group is broadly expected to retain its current production target at a November 27 meeting in Vienna.

December US crude fell 0.86% to $77.27 per barrel by 13:46 GMT, having shifted in a daily range of $77.62-$77.06 a barrel. The contract rose 0.7% on Tuesday to $77.94 a barrel.

Meanwhile on the ICE, Brent for delivery in the same month slid 0.70% to $81.10 a barrel. Prices shifted between $81.53 and $80.82 during the day. The European crude benchmark fell 0.81% to $81.67 on Tuesday, the lowest close since October 2010, having earlier fallen to $80.46, the weakest level since September 2010. Brent traded at a premium of $3.83 to its US counterpart, up from yesterdays close at $3.73 which was the narrowest in three weeks.

Oil prices drew some support after OPEC said in its monthly report that it pumped an average of 30.253 million barrels of oil per day in October, down 226 400 barrels from a month earlier. Saudi Arabia, the groups leading producer, saw its output slide by 69 900 barrels per day to 9.603 million bpd, the lowest in six months.

However, OPEC said it sees signs of global economic recovery and reaffirmed its forecast for global demand and the amount of crude it will need to supply this year and the next. Worldwide consumption will jump by 1.19 million bpd to 92.38 million next year, but members of the group will need to supply an average of 1.0 million bpd less compared to Octobers production level, or 29.2 million.

The 12 member countries are not expected to cut output at their meeting in Vienna scheduled for November 27th. Saudi Arabia and Kuwait have underscored their reluctance to pump less, while Libya, Venezuela and Ecuador have called out for decisive action to cushion the markets recent steep fall.

Angola’s Deputy Oil Minister Anibal Octavio da Silva said yesterday that the Organization of the Petroleum Exporting Countries is undecided on a production cut, while Kuwait Oil Minister Ali Al-Omair said in Abu Dhabi on November 10th that the group wont trim its collective crude production target at the upcoming meeting.

Ric Spooner, chief market analyst at Sydneys CMC Markets, said for CNBC: “The consensus view is OPEC wont take any action, or if it does, not big enough or sufficiently definitive to have too much impact on prices.”

Libya disruptions

Supply disruptions in Libya, holder of Africas biggest crude reserves, lent minor support. The countrys Hariga port remained blocked by a walkout over wages, leaving offline a capacity of 120 000 bpd, although negotiations to resolve the issue were ongoing, an official said yesterday. The El Sharara oilfield also remained closed.

Strong dollar, US inventories

However, a strong dollar and expectations for a yet another build in US crude oil inventories continued to drag on the market. The US dollar rallied to the highest in almost 4-1/2 years amid speculations the Federal Reserve might raise interest rates faster than anticipated as the US economic recovery remains robust and on track.

The US dollar index stood at 87.630 at 13:54 GMT, down 0.10% on the day. On Tuesday the US currency gauge lost 0.22% and closed at 87.719, having risen to 88.315 on Friday, the highest since June 2010.

Meanwhile, supply data on Wednesday and Thursday is expected to show that US crude supplies rose for a sixth consecutive week in the seven days through November 7th. Stockpiles probably jumped by 1.1 million barrels to 381.3 million last week, the highest since July, while gasoline inventories likely gained 350 000 barrels. Distillate fuel supplies, which include diesel and heating oil, probably declined by 1.5 million barrels.

Industry group the American Petroleum Institute will release its separate report at 21:30 GMT today. APIs statistics, however, are deemed less popular than EIAs numbers as they are based on voluntary information from operators of pipelines, refineries and bulk terminals, while the government requires reports be filed with the EIA.

The Energy Information Administration reported last week that US crude oil stockpiles rose by 0.5 million barrels in the seven days through October 31st to 380.2 million barrels. Refinery utilization rates picked up to 88.4% from 86.6% a week earlier but US crude production inched up to 8.972 million barrels per day, reaching the highest on record since January 1983.

Pivot points

According to Binary Tribune’s daily analysis, West Texas Intermediate December futures’ central pivot point is at $77.47. In case the contract breaches the first resistance level at $78.51, it may rise to $79.09. Should the second key resistance be broken, the US benchmark may attempt to advance $80.13.

If the contract manages to breach the first key support $76.89, it might come to test $75.85. With this second key support broken, movement to the downside could continue to $75.27.

Meanwhile, December Brent’s central pivot point is projected at $81.50. The contract will see its first resistance level at $82.55. If breached, it may rise and test $83.42. In case the second key resistance is broken, the European crude benchmark may attempt to advance $84.47.

If Brent manages to penetrate the first key support at $80.63, it could continue down to test $79.58. With the second support broken, downside movement may extend to $78.71 per barrel.