When Brent and WTI broke below Friday's lows on Monday morning, fresh downward potential was generated. However, the Stochastic indicator was still slightly bullish at the Gasoil chart which is why the technical constellation remained neutral at first. Even so, oil futures tended to the downside as the bearish market fundamentals predominated after Friday's OPEC meeting. The fact that the cartel didn't change its production policy put oil prices under pressure as did Saudi Arabia's move to reduce prices for January crude oil deliveries (last week) and the expectations of increasing Iranian oil exports. That is why most analysts still have a bearish stance. Experts at Goldman Sachs reiterated that WTI might fall back down near 20 USD against the backdrop of the OPEC's decision. Oil futures at ICE and NYMEX had already retreated in the first half of the day but their decline accelarated when US markets opened. The Stochastic indicator turned neutral at the Gasoil charts, adding to the technical selling pressure. Gasoil already hit fresh long-term lows in the early afternoon whereas Brent and WTI only did so in the course of the evening. The crude oil contracts fell to the lowest level since February/March 2009, ending the day near their lows.On Monday morning the Stochastic indicator was still bullish at the Gasoil chart but meanwhile its lines have crossed which is why the indicator can be considered neutral. The lines of the indicator are diverging again at the Brent and the WTI chart making the indicator slightly bearish as well. However, most of the downward potential is likely to have been spent during Monday's decline. WTI dropped below the lower Bollinger Band, indicating that prices will consolidate. Currently, we are thus assessing the technical constellation as neutral. If oil futures drop below Monday's lows, technical selling pressure would increase though. The technical constellation would then turn bearish.
ICE Gasoil contract for December delivery settled at 373.50 USD on Monday, this is -22.25 USD below Friday's settlement. With some 48,400 deals the traded volume (front month) was below average.
The result of the OPEC meeting was the main driver for oil prices on Friday and Monday. Since the cartel won't reduce its production, oil supplies will remain on a high level for the members of the organisation can produce whichever quantity they consider necessary. OPEC won't regulate oil prices any longer by adjusting its output.
Iran and Iraq are likely to cause an increase in the cartel's production. In the coming year, Iran's oil output is expected to rise by an amount between 0.5 and 1.0 mbpd. Iraq's production has some upward potential as well. According to the EIA, Iraq's oil output dropped from 4.40 to 4.05 mbpd in October. That is why the country might raise its production by some 0.3 or 0.4 mbpd. In addition to this, Iran is storing large amounts of crude oil on- and offshore. The stored crude oil could immediately be exported as soon as the sanctions against the country are lifted. Between 35 and 40 million barrels of crude oil are estimated to be stored on oil tankers along the coast of Iran.
Saudi Arabia has already prepared itself for these additional quantities by having cut the prices for Saudi crude oil loading in January (prices were partly reduced by -8.50 USD). Other producers will have to follow the kingdom's example to defend their market share. Selling pressure on oil futures will thus increase via the physical market. This will particularly affect futures with a sooner delivery date. The Contango with Brent and WTI futures is thus likely to steepen.
The US crude oil sort might face the most pressure. Since the OPEC won't reduce oil production, the US market will have to reign in supplies. Analyst Doug King at Merchant Commodity Fund expects that WTI prices will sharply decline leading to a lower oil output. After WTI has already hit a fresh low for the current year, investors are now bringing the 2009 low at 32.40 USD on the table.
The USA and the weekly US oil inventories are thus returning into focus. Stocks are on an extremely high level and this is unlikely to change given the fact that this winter has been rather mild so far. Forecasts for the next 30 days say that temperatures along the US East Coast will remain above average until the end of December - particularly in the Northeast, where many people are heating by oil. Usually, US crude oil futures decline at this time of year as refineries conclude their maintenance work. Moreover, operators are trying to reduce their stockpiles ahead of the reporting date. In fact, analysts are expecting builds in stockpiles, however.
The estimates range from flat crude oil stockpiles to a +1.0 million barrels-increase. The API will supply more precise data at 10.30 p.m. tonight. The DOE's report is on the agenda on Wednesday (4.30 p.m.). The increase in China's crude oil imports is slightly bullish. However, the country probably took advantage from the low November prices in order to raise its strategic stockpiles. That is why the 7.2%-increase in Chinese crude oil imports is only in part due to a higher demand.
Euro zone economic indicators:
- GDP third quarter +0,3%. Forecast: +0,3%; previous quarter: +0,4%
- GDP (yoy) third quarter +1,6%. Forecast: +1,6%; previous quarter: +1,5%
U.S.
Nymex is above average: Oil futures have edged higher in Asia and in electronic trade this morning fostered by some short-covering. However, this doesn't seem to be a significant upward correction and so, oil futures remain near Monday's lows. The traded volume at NYMEX is above average this morning. Market players are waiting for the European financial and forex markets to open today as well as for the release of some economic indicators.
Houston (ex-wharf indications 8-12)
380cst $179
180cst $261
MGO $425
New Orleans (ex-wharf indications 8-12)
380cst $190
180cst $246
MGO $435
Singapore (delivered indications 8-12)
Brent is crashing after the OPC meeting with -$1.40 for January contracts. Singapore paper is foollowing with -$9.25 for 180cst with -$9.25 for 380cst for Dec, and for Jan 180 cst -$8.80 and 380cst with -$8.50 with MGO contracts Dec with -$2.77 and in Jan with -$2.77. The cargo market is just starting to react with 180cst +$3.51, 380cst with +$3.11 and MGO with +$0.45.
380cst $204
180cst $190
MGO $385
Fujairah (delivered indications 8-12)
380cst $195
180cst $233
MGO $546
ARA (Amsterdam - Rotterdam - Antwerp)
Indications for delivered bunkers:
380cst : $163
MGO 0.1%S: $340
