Crude oil trading outlook: Brent futures extend drop on firm dollar

West Texas Intermediate marked a slight increase, while Brent extended losses into a fourth session as the US dollar hovered near the highest level in more than 11 years against a basket of major trading peers and Goldman Sachs predicted a reverse in oils recent gains.

US crude for delivery in April traded 0.20% higher at $49.71 per barrel at 8:18 GMT, shifting in a daily range of $49.76 – $49.32. The contract slid 2.3% on Friday to $49.61, falling for a third straight week.

Meanwhile on the ICE, Brent for settlement in the same month was down 0.42% at $59.48, having ranged between $59.76 and $59.21 during the day. The European crude benchmark fell 1.2% on Friday to $59.73, closing the week 4.6% lower at a premium of $10.12 to its US counterpart. The gap narrowed to $9.77 on Monday.

The US dollar hovered near the highest level in more than 11 years against a number of major trading partners after better-than-expected US employment data on Friday showed an upbeat pace of economic recovery, fueling speculations the Federal Reserve might move to raise interest rates sooner rather than later. Data by the Labor Department showed that US non-farm employers added 295 000 jobs in February, sharply exceeding projections for 240 000, while the unemployment rate slid to almost a seven-year low of 5.5%.

The US dollar index for settlement in March traded 0.16% lower at 97.450 at 8:17 GMT, having earlier risen to 97.845. The US currency gauge surged nearly 1.3% on Friday to 97.604, closing the week 2.4% higher. A stronger greenback makes dollar-denominated commodities pricier for holders of foreign currencies and curbs their appeal as an alternative investment.

Ben LeBrun, market analyst at Sydneys OptionsXpress, said for CNBC: “The U.S. dollar is continuing to strengthen. In the short-term its more about the dollar than anything else.”

Meanwhile, Goldman Sachs said oil prices are expected to reverse this years gains as global inventories expand, given that there are no further unexpected disruptions in OPEC production.

Escalating security issues in Libya continued to plague the countrys oil output as factions battle over political and oil wealth control. The state-run National Oil Corporation declared last week force majeure on 11 oilfields, while Czech and Libyan officials said on Saturday that as many as 10 foreign workers might have been taken hostage in the latest attack by Islamist militants on oil fields.

OPEC pricing

Providing support, Iraq, OPECs second-biggest producer, raised its April delivery prices to Asia by the most since November 2011 amid signs of improving demand, echoing a hike by Saudi Arabia last week. The state-run Oil Marketing Co. said Iraq will sell its Basrah Light crude at $2.80 a barrel below a Middle East benchmark, narrowing the discount by $1.30 from March.

Mark Keenan, the head of commodities research for Asia at Societe Generale SA in Singapore, said for Bloomberg: “Saudi Arabia’s OSP has been a very important indicator of oil demand recently. This extension into Iraq and other regional producers will be viewed as confirmation of the initial comments from Saudi Arabia that Asia demand is picking up.”

Meanwhile, OPEC Secretary-General Abdalla El-Badri said at a conference on Sunday that the oil market will balance itself out in the second half of the year.

The group reached a collective decision at a November 27th meeting to keep its production quota of 30 million bpd unchanged, denying obligation to cut its own output in order to balance the market for all producers. OPEC pumped 30.6 million barrels per day of crude last month, up by 163 000 barrels from January, exceeding the official target for a ninth straight month.

“If we made a cut in the November meeting, then we would have needed to make another cut in January, and then we would need another cut in June as supply will keep increasing from non-OPEC,” El-Badri said. He added that non-OPEC production has grown by 6 million bpd since 2008, while the groups output has remained largely unchanged near 30 million bpd.

Data by baker Hughes Inc. showed on Friday that the number of US drilling rigs fell by 64 to 922 last week, the lowest since April 2011, almost doubling the preceding two weeks drops of 33 and 37 rigs which had spurred speculations the downward trend is easing. This was the 13th straight weekly decline and an 18th of the past 21 weeks.

Pivot points

According to Binary Tribune’s daily analysis, West Texas Intermediate April futures’ central pivot point is at $49.90. In case the contract breaches the first resistance level at $50.93, it may rise to $52.24. Should the second key resistance be broken, the US benchmark may attempt to advance $53.27.

If the contract manages to breach the first key support at $48.59, it might come to test $47.56. With this second support broken, movement to the downside could continue to $46.25.

Meanwhile, April Brent’s central pivot point is projected at $60.07. The contract will see its first resistance level at $60.96. If breached, it may rise and test $62.20. In case the second key resistance is broken, the European crude benchmark may attempt to advance $63.09.

If Brent manages to penetrate the S1 level at $58.83, it could continue down to test $57.94. With the second support broken, downside movement may extend to $56.70 per barrel.