Crude oil trading outlook: WTI, Brent futures climb ahead of US payrolls

WTI and Brent futures were to the upside during morning trade in Europe today, as investors eye the key US nonfarm payrolls figure later today. Crude was looking for another massive loss late yesterday, but buying emerged at lows, reversing much of the slump.

WTI futures for November delivery on the New York Mercantile Exchange traded at $91.53 per barrel at 6:39 GMT today, up 0.57% for the day. Prices had ranged $91.05 to $91.79 per barrel. The US contract reversed all of Thursdays significant losses to close for a 0.31% gain, though it also logged the lowest price in 1.1/2 years at $88.18. The brand is now headed for a ~2% loss this week.

Meanwhile on the ICE in London, November Brent stood at $93.80 per barrel, up 0.41%, with prices between $93.49 and $94.06 per barrel. The contract’s premium to its US counterpart narrowed to $2.27, the lowest in more than a year. The global benchmark closed Thursdays session for a 0.8% loss, with the November future reaching a two-year low at $91.55. Brent is on track for a ~3% weekly loss.

“After a big drop yesterday, selling pressure might be over,” Ken Hasegawa, an energy trading manager at Newedge Group in Tokyo, said by phone today. “OPEC has still to make a decision to cut supply so it’s possible to see short-covering.”

Supply

Markets were pressured by somewhat shocking news from Saudi Arabia since Wednesday. The world’s top crude exporter cut the list price of its crude for Asia, Europe and North America. The news caught the market off guard, erasing the positive sentiment from a bullish Energy Information Administration (EIA) weekly US oil report.

Some market analysts had expected Saudi Arabia to cut output, and lift global crude prices, to accommodate smaller OPEC members, though at the cost of its own market share. The Kingdom is the only oil exporter with sufficient production with quick-shut capabilities, which makes possible significant, and timely, production cuts, or increases, which could significantly impact global prices.

“There’s need for strong production cuts, and the only country that can deliver that cut is Saudi Arabia,” Carsten Fritsch, commodity analyst at Commerzbank AG in Frankfurt, said for The Wall Street Journal. “A price drop below $90, maybe $85, will cause alarm bells.”

The price cut, however, indicates that Saudi Arabia is not keen on suffering to keep other OPEC members afloat, and global prices will probably have to dive deeper to stoke a reaction from the Kingdom, pressuring crude contracts.

Last month both OPEC and the International Energy Agency (IEA) lowered their projections of crude demand in 2015, amid growing supplies from Libya, Iraq and most notably – the US, stoking worries on the market to send futures tumbling.

“OPEC appears to be gearing up for a price war,” said Mr Fritsch. “We therefore do not expect prices to stabilize until this impression disappears and OPEC returns to co-ordinated production cuts.”

Demand

Investors eye the key figure on US nonfarm payrolls for September, due for release later today. Analysts expect a reading of 215 000, after a disappointing 142 000 new jobs were created in August. Meanwhile, the unemployment rate is expected at 6.1%, same as last month.

Some analysts pointed to possible positionning into the report as support for crude late yesterday.

“We might be seeing some positioning or buying as a defense against the risk of the non-farm payrolls being skewed to the downside,” Ric Spooner, chief market analyst at CMC Markets, said for Reuters.

A below-par figure would hurt not only US demand outlooks, but also the dollar, which would support all dollar-denominated commodities, such as crude oil.

Previously, more hard data on US demand/supply was posted. The EIA report, which covers the week through September 26th, revealed crude stocks had been drawn by 1.4 million barrels, meeting expectations and logging the 15th out of 18 weeks of draws.

On Tuesday crude crashed, logging the worst day in almost two years, with both benchmarks closing for ~3% loss. Analysts agree that a complex of factors contributed to the slump. A four-year strong dollar, weakening demand outlooks in Europe and China, second- and third-top oil consumers, respectively, rising output from OPEC and technical covering at the end of the quarter were all cited as possible factors.

Do you agree with analysts that Saudis will step in at $85-$90 levels?

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