Crude oil trading outlook: futures slide on strong dollar, China CPI supports

West Texas Intermediate and Brent crude fell on Tuesday as a firmer dollar offset better-than-expected consumer inflation data from China, while analysts awaited this weeks US inventory data, expected to show a rise to new records.

US crude for delivery in April traded 0.48% lower at $49.76 per barrel at 8:30 GMT, shifting in a daily range of $50.36-$49.63. The US crude benchmark rose 0.8% on Monday to $50.00, snapping two sessions of losses.

On the ICE, Brent for settlement in the same month was down 0.67% at $58.14, having ranged between $58.72 and $57.93 for the day. The contract slid 2% yesterday to $58.53, ending at a premium of $8.53 to its US counterpart. The gap narrowed to $8.38 on Tuesday.

The US dollar continued its march after much better than expected US employment data on Friday rekindled speculations the Federal Reserve might move to raise interest rates sooner rather than later as the US labor market kept its pace of solid recovery. 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 an almost seven-year low of 5.5%.

The US dollar index, which measures the greenbacks performance against a basket of six major trading peers, rose to a fresh 11-1/2-year peak on Tuesday. The March contract traded 0.61% higher at 98.180 at 8:29 GMT, ranging between 98.215 and 97.765 for the day.

Providing support, data by Chinas National Bureau of Statistics showed that consumer inflation picked up to the annualized pace of 1.4% in February, compared to analysts projections for a slight increase to 0.9% from 0.8% in January. Month-on-month, CPI rose to 1.2%, compared to a 0.3% gain in consumer prices in January.

However, a bigger-than-expected decline in producer prices, which are deemed a precursor to consumer inflation, underscored the Chinese economys continued weakness, bolstering speculations for further monetary stimulus by the Peoples Bank of China. The Producer Price Index contracted by an annualized 4.8%, compared to projections for -4.3%, extending a drop that has continued since early-2012.

Crude output

The market has been drawing limited support after Iraq, OPEC’s 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.

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.

In the US, crude output reached a new multi-decade high in the week ended February 27th, although analysts expect the recent steep drop in US rigs targeting oil to affect production in the second half of the year. 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 in the past 21 weeks.

The Energy Information Administration said yesterday that US shale oil output is forecast to register the slowest growth in more than four years in April which would coincide with refineries return from seasonal maintenance, fanning optimism for a pickup in demand.

Market players now eyed industry supply data by the American Petroleum Institute, due at 10:30 GMT, while the Energy Information Administration will release its official statistics at 14:30 GMT on Wednesday. Crude inventories are projected to have risen by 4.2 million barrels last week, while motor gasoline and distillate fuel supplies likely dropped by 2.0 and 2.6 million barrels, respectively.

Pivot points

According to Binary Tribune’s daily analysis, West Texas Intermediate April futures’ central pivot point is at $50.01. In case the contract breaches the first resistance level at $50.78, it may rise to $51.55. Should the second key resistance be broken, the US benchmark may attempt to advance $52.32.

If the contract manages to breach the first key support at $49.24, it might come to test $48.47. With this second support broken, movement to the downside could continue to $47.70.

Meanwhile, April Brent’s central pivot point is projected at $58.98. The contract will see its first resistance level at $59.57. If breached, it may rise and test $60.62. In case the second key resistance is broken, the European crude benchmark may attempt to advance $61.21.

If Brent manages to penetrate the S1 level at $57.93, it could continue down to test $57.34. With the second support broken, downside movement may extend to $56.29 per barrel.