Crude oil trading outlook: futures halt three-day rally on China slowdown fears

West Texas Intermediate and Brent crude fell on Tuesday as consumer inflation in China slowed to the lowest in five years last month, reigniting fears about oil demand in the worlds second biggest-economy and oil consumer.

US crude for delivery in March traded 1.55% lower at $52.04 per barrel at 8:42 GMT, having shifted in a daily range of $52.65-51.91. The contract rose for a third straight session on Monday, gaining 2.26% to $52.86, after it closed the previous week 7.2% higher.

Meanwhile on the ICE, Brent for settlement in the same month traded 1.18% lower at $57.65 a barrel, holding in a daily range of $57.90-$57.41. The European crude benchmark rose 0.93% on Monday to $58.34 after it gained ~9% last week, the best weekly showing since February 2011. Brent traded at a premium of $5.61 to its US counterpart, up from yesterdays settlement at $5.48.

Data by Chinas National Bureau of Statistics showed that consumer prices rose by a worse-than-expected 0.3% on a monthly basis in January, while year-on-year the Consumer Price Index gained 0.8%, the slowest growth in five years. Analysts had projected a drop to 1.0% from Decembers 1.5% increase.

Moreover, factory gate prices slid for a 35th straight month, with the corresponding Producer Price Index tumbling by an annualized 4.3%, spurring expectations for further monetary easing by the Peoples Bank of China and giving policy makers enough room to act.

Oil prices drew support on Monday after an OPEC report showed producers outside the group are expected to pump around 400 000 barrels per day of crude less than previously expected, the biggest downward revision since at least 2008, as low prices force US producers to scale back output.

Data by Baker Hughes Inc. showed on Friday that the number of active US oil rigs slid by 83 to 1 140 last week, the lowest since December 2011. The total rig count has dropped by a record 435 in nine weeks.

OPEC also saw higher demand than previously estimated for its own crude this year as a result of slowing non-OPEC production growth. The group will supply 29.2 million barrels per day in 2015, which however still exceeds the current output pace by around 1 million bpd and compares to its collective target of 30.0 million bpd.

OPECs 12 members pumped 30.15 million bpd a day in January, 53 000 bpd less than a month earlier, led by a 279 000-bpd production drop in Iraqi output.

The International Energy Agency said in its Medium-Term Oil Market Report released on Tuesday that demand for OPEC oil will hover near 29.4 million bpd this year, but warned that US shale production growth will only stall during the current price slump, before rebounding back up.

“As producers take an axe to their spending, supply will grow far more slowly than previously projected, but global capacity is still forecast to expand by 5.2 million barrels per day by 2020,” the IEA said. “Growth in US LTO (shale oil) is expected to regain momentum in the latter part of the forecast period as prices recover, and North America remains a top source of supply growth for the remainder of the decade.”

US inventories

This weeks inventory report by the Energy Information Administration is expected to show another weekly build, which, if confirmed, will bring US crude stockpiles to the highest in at least 80 years. Crude supplies probably rose by 3.77 million barrels in the seven days through February 6th, while motor gasoline inventories likely jumped by 0.93 million. Distillate fuel stockpiles are projected to have fallen by 0.50 million barrels.

“Another report of strong builds in inventories in this weeks EIA market report could halt oils rally,” ANZ bank said, cited by CNBC.

US crude output remained near the highest in more than three decades in the week ended January 30th, data by the EIA showed. The US pumped 9.177 million barrels per day, compared to the record 9.213 million a week earlier, while crude inventories surged by 6.333 million barrels to 413.1 million barrels, the highest for weekly EIA data spanning back to 1982 and the most 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.

Pivot points

According to Binary Tribune’s daily analysis, West Texas Intermediate March futures’ central pivot point is at $52.83. In case the contract breaches the first resistance level at $54.02, it may rise to $55.17. Should the second key resistance be broken, the US benchmark may attempt to advance $56.36.

If the contract manages to breach the first key support at $51.68, it might come to test $50.49. With this second support broken, movement to the downside could continue to $49.34.

Meanwhile, March Brent’s central pivot point is projected at $58.42. The contract will see its first resistance level at $59.53. If breached, it may rise and test $60.73. In case the second key resistance is broken, the European crude benchmark may attempt to advance $61.84.

If Brent manages to penetrate the S1 level at $57.22, it could continue down to test $56.11. With the second support broken, downside movement may extend to $54.91 per barrel.