Crude oil trading outlook: futures rise amid volatility, glut seen persisting

West Texas Intermediate and Brent crude extended overnight gains on Friday amid the highest trading volatility in nearly six years as investors weighed a global supply glut versus speculations that oil demand in China may rise as the Peoples Bank of China expands monetary easing.

US crude for delivery in March rose 1.58% to $51.28 per barrel by 8:26 GMT, having shifted in a daily range of $52.05-$50.72. The contract gained 4.19% on Thursday to settle at $50.48 a barrel and is up 6.9% so far this week.

Meanwhile on the ICE, Brent for settlement in the same month traded 1.75% higher at $57.56 a barrel, holding in a daily range of $58.06-$56.71. The European crude benchmark rose 4.45% yesterday to $56.57, settling at a premium of $6.09 to its US counterpart. The gap widened to $6.28 on Friday.

Oil prices rallied yesterday as clashes in Libya fanned some supply concerns, but the main focus was continued monetary easing by the Peoples Bank of China. The central bank reduced its minimum reserve requirements for banks to 19.5% from 20.5% in the latest bid to jump-start the cooling Chinese economy.

However, most analysts didnt perceive the oil rally as the beginning of a rapid recovery as underlying fundamentals kept sentiment skewed to the downside. Saudi Arabia cut March export prices to Asia for its Arab Light crude by $0.90 to $2.30 per barrel below a Middle East benchmark, the lowest in at least 14 years, signaling the kingdoms ongoing efforts to curb US shale output and retain market share.

The Organization of the Petroleum Exporting Countries pumped 30.91 million barrels per day of crude in January, exceeding its collective 30-million-bod quota for an eight straight month, a survey by Bloomberg showed.

Meanwhile in the US, the United Steelworkers union, which began a strike at nine US oil plants on February 1st, plans to resume talks with lead negotiator Royal Dutch Shell next week after turning down a sixth offer for a new labor contract affecting 30 000 workers. An extended strike action would further ease crude demand in the US, while draining down inventories of refined products, analysts say.

Oil prices rallied by almost 19% in the four sessions through Tuesday after data by Baker Hughes Inc. showed on January 30th that US drillers idled 94 oil rigs in a week, the most since the company began tracking data in 1987, sending the total number of operating units to the lowest in three years. That, coupled with oil companies announcements for cuts in capital spending plans spurred speculations of a major change in the market, but focus remained pointed toward the near-term headwinds.

The Energy Information Administration reported on Wednesday that US crude oil inventories surged by 6.333 million barrels in the week ended January 30th to 413.1 million barrels. This was the highest for weekly EIA data spanning back to 1982 and the highest since 1931 for monthly data.

Supplies at the Cushing, Oklahoma storage hub jumped from 38.9 million barrels a week earlier to 41.4 million, the highest in a year. Inventories there have doubled since October 17th.

US crude output slightly eased to 9.177 million barrels per day from 9.213 million during the previous week, which was the highest on weekly data spanning back to January 1st 1983. Domestic production has remained above 9 million bpd for each week since October.

Motor gasoline stockpiles jumped by 2.335 million barrels to 240.7 million last week, while distillate fuel inventories rose by 1.788 million barrels to 134.5 million, both underperforming analysts’ projections.

Investors now eyed todays all-important employment data from the US to gauge the recovery progress of the worlds biggest economy. The Labor Department is expected to report non-farm payrolls at 234 000, while the unemployment rate likely remained unchanged at a multi-year low of 5.6%.

Data by Automatic Data Processing showed on Wednesday that private non-farm employers added 213 000 jobs in January, while the Labor Department reported on Thursday that the number of Americans who filed for initial unemployment benefits last week rose to 278 000 from 267 000 the preceding period, compared to expectations for a jump to 290 000.

Pivot points

According to Binary Tribune’s daily analysis, West Texas Intermediate March futures’ central pivot point is at $49.98. In case the contract breaches the first resistance level at $52.60, it may rise to $54.72. Should the second key resistance be broken, the US benchmark may attempt to advance $57.34.

If the contract manages to breach the first key support at $47.86, it might come to test $45.24. With this second support broken, movement to the downside could continue to $43.12.

Meanwhile, March Brent’s central pivot point is projected at $55.84. The contract will see its first resistance level at $58.60. If breached, it may rise and test $60.64. In case the second key resistance is broken, the European crude benchmark may attempt to advance $63.40.

If Brent manages to penetrate the S1 level at $53.80, it could continue down to test $51.04. With the second support broken, downside movement may extend to $49.00 per barrel.