Crude oil trading outlook: futures steady ahead of expiry, refinery deal eyed

West Texas Intermediate and Brent crude were little changed on Friday as investors eyed a tentative deal between the United Steelworkers union and Royal Dutch Shell that may end the biggest strike by US refinery workers in 35 years, while a firm dollar capped gains.

US crude for delivery in April traded 0.26% higher at $47.17 per barrel at 8:26 GMT, shifting in a daily range of $47.28-$46.80. The contract tumbled 2.3% yesterday to $47.05, settling lower for a third session. Prices are down ~5% for the week. The contract expires on March 20th.

Meanwhile on the ICE, Brent for settlement in the same month which expires on March 16th, was down 0.33% at $56.89 a barrel, ranging between $57.40 and $56.69 for the day. The European benchmark crude slid 0.8% on Thursday to $57.08 a barrel, widening its premium to WTI to $10.03 from $9.37 on Wednesday. The gap was at $9.72 on Friday.

A retreating US dollar came as a breather for oil prices as an unexpected contraction in Februarys retail sales knocked a gauge measuring its performance against six major currencies off the highest levels in almost 12 years. Better-than-expected initial jobless claims, however, proved supportive.

Investors eyed todays preliminary consumer confidence reading for March, prepared by the University of Michigan, expected to mark a slight improvement in sentiment compared to the previous month. The US dollar index for settlement in March traded 0.06% lower at 99.350 at 8:26 GMT. The gauge touched 100.065 yesterday, the highest since April 2003. A stronger greenback makes dollar-denominated commodities pricier for holders of foreign currencies and boosts their appeal as an alternative investment.

Refinery strike

The United Steelworkers union initiated the largest US refinery strike in 35 years on February 1st amid a wage dispute with oil companies, led by lead negotiator Royal Dutch Shell, and had before yesterday rejected seven offers. The union, representing 30 000 US oil workers at plants accounting together for 64% of US fuel output, expanded the strike last month to affect refineries responsible for almost a fifth of US refining capacity.

The two sides reached on Thursday a tentative deal on a four-year contract that may end the national strike, fanning optimism among investors for a pickup in US crude demand. The strike was among the main reasons for a widening of the Brent-WTI spread to over $10 as the highest US crude output in more than three decades, coupled with softer demand, led to a jump in nationwide crude inventories to the highest in more than 80 years, while stockpiles at Cushing rose back above 50 million barrels for the first time since May 2013.

A recovery in refining capacity would boost US crude demand and begin draining inventories, with the Brent-WTI spread expected to drop back to about $4-$5, according to analysts.

The Energy Information Administration reported on Wednesday that US crude supplies jumped by 4.512 million barrels in the seven days through March 6th to 448.9 million, the most in at least 80 years, while production inched up to 9.366 million, the highest on weekly statistics stretching back to January 1983.

Market players also awaited the release of Baker Hughes weekly rig count data, due Friday afternoon. The oil service company reported last 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 February’s estimate of $55.02.

Pivot points

According to Binary Tribune’s daily analysis, West Texas Intermediate April futures’ central pivot point is at $47.56. In case the contract breaches the first resistance level at $48.25, it may rise to $49.46. Should the second key resistance be broken, the US benchmark may attempt to advance $50.15.

If the contract manages to breach the first key support at $46.35, it might come to test $45.66. With this second support broken, movement to the downside could continue to $44.45.

Meanwhile, April Brent’s central pivot point is projected at $57.47. The contract will see its first resistance level at $58.42. If breached, it may rise and test $59.77. In case the second key resistance is broken, the European crude benchmark may attempt to advance $60.72.

If Brent manages to penetrate the S1 level at $56.12, it could continue down to test $55.17. With the second support broken, downside movement may extend to $53.82 per barrel.