Crude oil trading outlook: futures slide ahead of ECB decision, EIA supply data

Both West Texas Intermediate and Brent crude fell on Thursday amid an outlook for a stronger dollar and as projections for another weekly jump in US crude oil inventories exacerbated concerns of a global supply overhang.

On the New York Mercantile Exchange, WTI for delivery in March fell 0.80% to $47.40 per barrel by 9:42 GMT, having shifted in a daily range of $47.69-$47.10. The contract rose 2.8% on Wednesday to $47.78.

Meanwhile on the ICE, Brent for settlement in the same month was down 0.22% to $48.92 a barrel, ranging between $49.15 and $48.50 during the day. The European benchmark crude added 2.17% yesterday to settle at $49.03. Brent was at a premium of $1.52 to its US counterpart, down from Wednesdays close at $1.55.

Oil prices pared overnight gains as investors eyed the upcoming ECB policy decision, which is broadly expected to initiate a bond-buying program that would further devalue the euro against the US dollar, weighing on dollar-denominated commodities.

CNBC reported, citing a source, that the ECBs Executive Board has proposed a program to buy 50 billion euros in bonds per month, starting in March, to fight deflation and spur economic growth in the single currency bloc.

Meanwhile, demand-supply imbalance worries continued to weigh on the market, with OPEC showing no signs of willingness to back off and reduce output. Oil prices have fallen by more than 50% since a June peak as the US pumps at the highest pace in more than three decades, while OPEC resisted calls to cut its own output, exacerbating concerns that slowing global economic growth will fail to soak the additional supply.

OPEC officials have attributed the price rout to rising supplies outside the group, saying that OPEC bears no responsibility and therefore shouldnt feel obliged to reduce its own market share in order to stabilize the market.

Data by the Energy Information Administration showed last week that US crude output surged by 60 000 barrels per day to 9.192 million bpd in the seven days ended January 9th, the highest level for weekly data dating back to January 1983.

OPEC Secretary-General Abdalla El-Badri said that oil prices will rebound rather than extend losses to as low as $20, as some analysts had predicted. Meanwhile, the groups second-biggest producer Iraq will need to boost output to compensate for the lower prices, according to Deputy Prime Minister Rowsch Nuri Shaways. Oil Minister Adel Abdul Mahdi said earlier in the week that Iraq is currently pumping a record 4 million barrels per day and plans to boost exports to 3.3 million bpd this year.

US supplies

Further weighing on the market, the EIA is expected to report later today that US crude oil inventories rose by 2.62 million barrels in the week ended January 16th, following a 5.39-million jump the preceding period. Gasoline inventories are projected to have risen by 1.3 million barrels, while stockpiles of distillate fuels, which include diesel and heating oil, probably increased by 0.25 million barrels.

Industry group the American Petroleum Institute reported yesterday that US crude inventories rose by 5.7 million barrels last week, while gasoline stockpiles increased by 2.1 million and distillate supplies fell by 1.8 million barrels.

APIs data, however, is deemed less reliable than EIAs figures as the trade association bases its statistics on voluntary information provided by operators of refineries, pipelines and bulk terminals, while the government requires reports to be filed with the EIA.

Pivot points

According to Binary Tribune’s daily analysis, West Texas Intermediate March futures’ central pivot point is at $47.51. In case the contract breaches the first resistance level at $48.47, it may rise to $49.16. Should the second key resistance be broken, the US benchmark may attempt to advance $50.12.

If the contract manages to breach the first key support at $46.82, it might come to test $45.86. With this second support broken, movement to the downside could continue to $45.17.

Meanwhile, March Brent’s central pivot point is projected at $48.94. The contract will see its first resistance level at $49.68. If breached, it may rise and test $50.32. In case the second key resistance is broken, the European crude benchmark may attempt to advance $51.06.

If Brent manages to penetrate the S1 level at $48.30, it could continue down to test $47.56. With the second support broken, downside movement may extend to $46.92 per barrel.