Crude oil trading outlook: futures set for monthly gain on balance optimism

West Texas Intermediate and Brent crude both headed for their first monthly gain since June as a reduction in US oil rigs sparked confidence the market is on its path to balance, a view shared by Saudi Arabias oil minister and the International Energy Agency.

US crude for delivery in April traded 2.43% higher at $49.34 per barrel at 8:06 GMT, shifting in a daily range of $49.44-$48.66. The contract tumbled 5.5% on Thursday to $48.17, erasing the prior sessions 3.5% gain. Prices are headed for a weekly drop but are up 0.5% for the month.

Meanwhile on the ICE, Brent for settlement in the same month gained 2.18% to $61.36 a barrel, having ranged between $61.54 and $60.51 for the day. The contract fell 2.56% on Thursday to $60.05 but is up 13.4% for the month, the biggest monthly gain since May 2009. Brent traded at a premium of $12.02 to its US counterpart, up from Thursdays settlement at $11.88.

Oil prices tumbled by almost 50% in 2014 and slid further to a six-year low in late-January as OPEC denied any obligations to cut its own output to normalize the market, while the US pumped at the highest rate in more than three decades.

Prices rebounded in February amid optimism that a steep reduction in the number of US rigs drilling for oil, coupled with a slump in upstream investments, will balance out the market later this year, although idling the rigs seemed to have little-to-no immediate effect on US output.

Baker Hughes Inc. reported last Friday that the number of rigs targeting oil in the US fell by 37 to 1 019 last week, the lowest since July 2011, marking a 35% cut in eleven straight weeks.

Meanwhile, government data showed that the active rig count in North Dakota, the second-biggest producing state, fell to 119 on February 26th from 193 last year.

The International Energy Agency echoed Saudi Arabias view that the oil market will rebalance in the next several months as low oil prices curb production and investments, while lifting demand.

Fatih Birol, the IEAs chief economist, said that oil at $45 per barrel is unsustainable, adding that investment cuts in the US, Russia and Brazil will limit output growth.

Also providing support, Norwegian energy company Statoil has shut its Statfjord C platform in the North Sea for repairs.

However, record US stockpiles and production kept a lid on prices. Data by the Energy Information Administration showed on Wednesday that US crude oil stockpiles surged by 8.427 million barrels in the seven days through February 20th to 434.1 million, the highest in at least 80 years.

Stockpiles at the Cushing, Oklahoma storage hub rose to 48.7 million barrels from 46.3 million a week ago, the most in at least a year, while domestic crude production jumped by 5 000 barrels per day to 9.285 million bpd, the highest since 1972.

In economic news, Chinas manufacturing sector unexpectedly expanded in February, albeit at a minor pace, but a slump in new export orders warranted expectations for further monetary stimulus measures by the Peoples Bank of China.

Data from the US showed yesterday that consumer prices in the US contracted by 0.7% in January from a month earlier, while the core measure marked a 0.2% gain, exceeding projections for 0.1%. Year-on-year, the Consumer Price Index registered a 0.1% deflation, while Core CPI was up 1.6%.

A separate report by the Census Bureau showed a better-than-expected growth in durable goods orders in January, although the core measure gained less than expected, while initial jobless claims rose to 313 000 last week, exceeding analysts projections for a jump to 290 000.

Federal Reserve Chairwoman Janet Yellen said in a testimony before the US Congress earlier this week that an interest rate hike in the US is not imminent. She added that the US economy has improved to the point where an increase in borrowing costs would be discussed on a “meeting-by-meeting” basis, but lifting borrowing costs was unlikely to happen in the next couple of meetings.

Market players now eyed todays GDP, pending home sales and Michigan Consumer Confidence readings from the US to gauge the economys well-being, while Italy and Germany will release consumer inflation figures.

Pivot points

According to Binary Tribune’s daily analysis, West Texas Intermediate April futures’ central pivot point is at $49.06. In case the contract breaches the first resistance level at $50.33, it may rise to $52.48. Should the second key resistance be broken, the US benchmark may attempt to advance $53.75.

If the contract manages to breach the first key support at $46.91, it might come to test $45.64. With this second support broken, movement to the downside could continue to $43.49.

Meanwhile, April Brents central pivot point is projected at $60.78. The contract will see its first resistance level at $61.90. If breached, it may rise and test $63.75. In case the second key resistance is broken, the European crude benchmark may attempt to advance $64.87.

If Brent manages to penetrate the S1 level at $58.93, it could continue down to test $57.81. With the second support broken, downside movement may extend to $55.96 per barrel.