Crude oil trading outlook: futures rebound on API inventory figures, EIA data in focus

West Texas Intermediate and Brent crude pared hefty overnight losses after industry data showed a surprising drop in US crude oil stockpiles last week, with investors now eyeing todays official EIA statistics for confirmation or rebuttal. A strong dollar kept gains checked.

WTI crude for delivery in April traded 0.81% higher at $48.68 per barrel at 8:18 GMT, shifting in a daily range of $49.05-$48.60. The contract tumbled 3.4% on Tuesday to $48.29.

Meanwhile on the ICE, Brent for settlement in the same month gained 0.16% to trade at $56.48 a barrel, holding in a daily range of $56.95-$56.40. The European crude benchmark slid 3.7% yesterday to $56.39, settling at a premium of $8.10 to its US counterpart. The gap narrowed to $7.80 on Wednesday.

The oil market tumbled on Tuesday under the pressure of a strong dollar, with a measure of the greenbacks performance against a basket of six major peers rising to the highest in 11-1/2 years after a raft of upbeat US employment data.

The US dollar index for settlement in March traded 0.33% higher at 98.945 at 8:18 GMT, having earlier risen to a multi-year high of 99.020. A stronger dollar makes commodities priced in it more expensive for holders of foreign currencies and curbs their appeal as an alternative investment.

The greenback drew heavy support after the US Labor Department reported on Friday that US non-farm employers added much more jobs than expected in February, while the unemployment rate slid to the lowest in almost seven years, backing the case of a sooner interest rate hike by the Federal Reserve. Additional data on Tuesday showed that the number of job openings in the US rose to the highest in 14 years in January, with the US JOLTs Job Openings hitting 4.998 million.

Industry data showing an unexpected rebound in US crude inventories, however, helped oil pare some of Tuesdays losses. Industry group the American Petroleum Institute reported late yesterday that US crude stockpiles fell by 0.404 million barrels last week, but both motor gasoline and distillate fuel supplies jumped by 1.7 million barrels each. Crude inventories at the Cushing, Oklahoma storage hub rose by 2.2 million barrels, the API said.

The more widely tracked government statistics, provided by the Energy Information Administration, are expected to show a jump of 4.44 million barrels in crude stockpiles, while gasoline and distillate fuel inventories probably fell, by 1.69 and 2.57 million barrels, respectively.

“The market has been looking forward and waiting for production to drop off,” said for Bloomberg Ric Spooner, a chief strategist at CMC Markets in Sydney. “Even so, there’s room for nervousness if the starting point keeps on getting worse in the sense that you have a bigger and bigger inventory to work through.”

Rig count

Oil prices remain under pressure even as US producers idle oil rigs in response to the markets rout that began in June. Baker Hughes reported 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 in its monthly Short-Term Energy Outlook on Tuesday that US shale 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. However, production will rise to 9.35 million barrels this year, an upward revision of 50 000 barrels from a month earlier, and WTI will trade at $52.15 a barrel in 2015 versus Februarys estimate of $55.02.

Meanwhile, Qatars former energy minister Abdullah bin Hamad al-Attiyah said that OPEC shouldnt hold an extraordinary meeting without “concrete decision” for a change in production policy, adding that the group wont adopt any changes in policy at Junes scheduled meeting unless other producers lead a supply cut.

In China, industrial output expanded at a slower-than-expected annual pace of 6.8% in February, compared to 7.9% in January, while Fixed Asset Investment grew by 13.9%, trailing projections for 15.0%. Retail sales also came in below expectations.

Data on Tuesday 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. However, a bigger-than-expected decline in producer prices, which are deemed a precursor to consumer inflation, underscored the Chinese economy’s continued weakness.

Pivot points

According to Binary Tribune’s daily analysis, West Texas Intermediate April futures’ central pivot point is at $48.95. In case the contract breaches the first resistance level at $49.70, it may rise to $51.11. Should the second key resistance be broken, the US benchmark may attempt to advance $51.86.

If the contract manages to breach the first key support at $47.54, it might come to test $46.79. With this second support broken, movement to the downside could continue to $45.38.

Meanwhile, April Brent’s central pivot point is projected at $57.08. The contract will see its first resistance level at $58.03. If breached, it may rise and test $59.68. In case the second key resistance is broken, the European crude benchmark may attempt to advance $60.63.

If Brent manages to penetrate the S1 level at $55.43, it could continue down to test $54.48. With the second support broken, downside movement may extend to $52.83 per barrel.