Crude oil trading outlook: futures extend losses on OPEC pre-meeting disagreement

November 26, 2014 8:59 am

Both West Texas Intermediate and Brent crude fell slightly on Wednesday as OPEC members failed to commit to oil production cuts one day before the group’s scheduled meeting.

January US crude fell 0.35% on Wednesday to $73.83 per barrel by 08:38 GMT. Prices held in a daily range between $74.24 and $73.64 a barrel, the lowest since November 14th. The contract lost 2.23% on Tuesday to $74.09 and is currently trading 28% lower from its June peak.

Meanwhile on the ICE, Brent for delivery in the same month fell 0.18% to $78.19 a barrel, having shifted in a daily range between $78.58 and $78.00. The European crude benchmark dropped 1.69% on Tuesday to $78.33, settling at a premium of $4.24 to WTI. The gap widened to $4.36 on Wednesday.

According to Rafael Ramirez, Venezuela’s foreign minister and the country’s OPEC representative, negotiations with officials from Mexico, Russia and Saudi Arabia failed to result in a joint pledge to cut production. Mr. Ramirez said all present member agreed that current prices were “not good” for producers, but none of the officials guaranteed production cuts at Thursday’s official OPEC meeting.

The meeting had caused a lot of speculation about agreements and production cuts. However, Russia’s Igor Sechin, CEO of Rosneft, said that his country is not ready to reduce output as the current price levels is not a threat to Russia. He also mentioned that Rosneft might limit some of its capital projects and thus affect supply.

“Russia in the past has said it would cut back production and hasn’t, but the fact that Mr. Sechin is the most important figure in Russian energy there is a very strong message to OPEC about Russian interest in the stabilization of price. It adds to the weight of the meeting” said Daniel Yergin, vice chairman of IHS.

Saudi Arabia, the twelve-member group’s biggest producer, has not yet responded to the price rout, causing a lot of speculation around its decision of whether or not to back up a coordinated production cut.

“I still think the Saudis appear to be in no mood or disposition to cut production right now, particularly since it would only benefit the very non-OPEC production that has driven them to this place” said John Kilduff of Again Capital.

Crude reserves

US crude reserves increased by 2.8 million barrels last week, data by industry group American Petroleum Institute showed, compared to a 3.7-million increase in the preceding seven days. Gasoline inventories edged up by 0.043 million and distillates fell by 1.3 million according to API’s data. A Bloomberg survey ahead of EIA’s government data later today showed that stockpiles in the world’s largest oil consumer probably increased by 250 000 barrels.

Last week’s inventory report showed a 2.608-million jump. Domestic crude output was at 9.004 million barrels per day, compared to the previous week’s 9.063 million bpd which was the highest on record for weekly data, while refinery utilization picked up to 91.2% from 90.1% during the previous week.

Providing some support on the demand side, the US Department of Commerce revised up on Tuesday its Q3 GDP growth measure to an annualized 3.9%, up from initially estimated at 3.5%. This, combined with the previous quarter’s 4.6% jump, marked the fastest back-to-back economic growth since late 2003.

However, the Conference Board reported an unexpected drop in US consumer confidence in November, reflecting a drop in sentiment among Americans about the economy and labor market. The corresponding index slid to 88.7 from 94.1 in October, defying projections for a jump to 95.9.

On Wednesday, the US Census Bureau reports on October durable goods orders at 13:30 GMT, while the Labor Department releases its weekly Initial Jobless Claims data. Later in the day are due the November Thomson Reuters/University of Michigan consumer sentiment index, while the Commerce Department reports on sales of newly-built homes in October and the National Association of Realtors will release its Pending Home Sales data.

Pivot Points

According to Binary Tribune’s daily analysis, West Texas Intermediate January futures’ central pivot point is at $74.79. In case the contract breaches the first resistance level at $75.88, it may rise to $77.66. Should the second key resistance be broken, the US benchmark may attempt to advance $78.75.

If the contract manages to breach the first key support $73.01, it might come to test $71.92. With this second key support broken, movement to the downside could continue to $70.14.

Meanwhile, January Brent’s central pivot point is projected at $78.94. The contract will see its first resistance level at $79.83. If breached, it may rise and test $81.33. In case the second key resistance is broken, the European crude benchmark may attempt to advance $82.22.

If Brent manages to penetrate the first key support at $77.44, it could continue down to test $76.55. With the second support broken, downside movement may extend to $75.05 per barrel.

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