Crude oil trading outlook: futures rise after API data, glut weighs

West Texas Intermediate and Brent crude rose after data by the American Petroleum Institute showed late Tuesday that US crude inventories fell less-than-expected last week. However, gains remained capped by a grim global supply-demand outlook, with investors eyeing todays EIA supply figures.

US crude for delivery in March traded 0.52% higher at $50.28 per barrel at 8:22 GMT, having shifted in a daily range of $51.14-$50.17. The contract tumbled into negative weekly territory on Tuesday after falling 5.37% to $50.02.

Meanwhile on the ICE, Brent for settlement in the same month traded 0.28% higher at $56.59 a barrel, holding in a daily range of $57.00-$56.12. The contract slid 3.27% to $56.43 on Tuesday. Brents premium to its US counterpart narrowed to $6.31 from yesterdays close at $6.41.

Oil prices tumbled on Tuesday after downbeat inflation data from China renewed fears demand in the worlds second-biggest consumer may ease further, while the IEA said that US shale oil production growth will ease only temporarily before prices recover later in the decade.

“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 in its Medium-Term Oil Market Report released on Tuesday. “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.”

The market regained some lost ground on Wednesday after industry group the American Petroleum Institute reported late on Tuesday that US crude oil inventories rose by 1.6 million barrels last week, but both gasoline and distillate fuel stockpiles increased as well, adding 1.6 million and 0.497 million barrels, respectively.

Investors awaited the release of government statistics today to better gauge the supply-demand picture in the US. EIAs report is deemed more reliable than APIs figures as the government requires from operators of refineries, pipelines and bulk terminals to submit data with the EIA, while API works with reports provided voluntarily.

The Energy Information Administration will likely say later today that US crude oil inventories rose by 3.73 million barrels in the seven days through February 6th, while gasoline stockpiles added 0.2 million and distillate fuel supplies fell by 0.817 million. If confirmed, this would bring crude stocks at a record level for weekly data spanning back to 1982 and the most in more than 80 years for monthly statistics.

Rig counts, OPEC prices

Oil prices found what would seem a robust temporary support in recent weeks, rebounding from six-year low levels, amid speculations that a solid drop in the count of active US oil rigs showed positive signs that producers have begun to address the price rout. Baker Hughes Inc. reported on Friday that US drillers idled 83 rigs last week, bringing their total number to 1 140, the lowest since December 2011. Their count has dropped by a record 435 in nine weeks.

However, IEAs bearish picture was supported by the EIA, which kept its 2015 and 2016 domestic crude oil output mostly unchanged from the previous month, with the agency projecting this years production pace to average 9.30 million bpd.

Further weighing on the market, Iraq and Iran followed Saudi Arabia into cutting their March crude prices for Asian deliveries to the lowest in more than ten years, a sign OPECs major producers are determined to retain market share.

Iraqs Basrah Light crude saw its discount to Middle East benchmarks widened to $4.10, the Oil Marketing Co. said Tuesday, while National Iranian Oil Co. cut its selling price for March Light crude to a discount of $2.10 a barrel, the lowest in around 15 years.

Saudi Arabia, which steered OPEC into reaffirming its production quota of 30 million bpd at a November 27th meeting, lowered last week its prices for deliveries to Asia to the lowest in at least 14 years.

John Sfakianakis, Middle East director at Ashmore Group Plc., said for Bloomberg: “If they go out and sell at a higher price, they won’t sell much. For the Saudis, it’s market share at any cost. Saudi is the leader in this and the others have to follow the leader.”

OPEC said in a report earlier this week that 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.

The oil cartel 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.

Pivot points

According to Binary Tribune’s daily analysis, West Texas Intermediate March futures’ central pivot point is at $50.84. In case the contract breaches the first resistance level at $51.83, it may rise to $53.63. Should the second key resistance be broken, the US benchmark may attempt to advance $54.62.

If the contract manages to breach the first key support at $49.04, it might come to test $48.05. With this second support broken, movement to the downside could continue to $46.25.

Meanwhile, March Brent’s central pivot point is projected at $57.04. The contract will see its first resistance level at $57.96. If breached, it may rise and test $59.50. In case the second key resistance is broken, the European crude benchmark may attempt to advance $60.42.

If Brent manages to penetrate the S1 level at $55.50, it could continue down to test $54.58. With the second support broken, downside movement may extend to $53.04 per barrel.