Crude oil trading outlook: futures resume drop on record US inventories

West Texas Intermediate and Brent crude resumed downward movement on Thursday as the US dollar pared hefty overnight losses, while investors focused on government supply data showing the highest level of inventories in more than 80 years.

US crude for delivery in May traded 3.00% lower at $45.25 per barrel at 8:26 GMT, shifting in a daily range of $46.81-$45.21. The American crude benchmark surged 3.23% on Wednesday to $46.65, rebounding from a six-year low of $44.03 hit earlier in the day. The April contract expires on March 20th.

Meanwhile on the ICE, Brent for delivery in the same month was down 1.75% at $54.93 per barrel, having ranged between $56.20 and $54.87 during the day. The contract gained 4.5% on Wednesday to $55.91, settling at a premium of $9.26 to its US counterpart. The gap widened to $9.68 on Thursday.

US crude fell to a fresh six-year trough yesterday, while Brent was at the lowest in six weeks following another exceedingly bearish EIA supply report. A later drop in the US dollar helped ease pressure on the market as the Federal Reserve lowered its projections for US interest rates.

Focus on Thursday, however, was once again fixated on soaring US supplies. The Energy Information Administration reported that crude stockpiles surged by 9.622 million barrels to 458.5 million last week, the highest in at least 80 years, sharply exceeding a projected gain of 3.75 million barrels. Supplies at the Cushing, Oklahoma storage hub jumped to 54.4 million barrels from 51.5 a week earlier, the most on weekly data spanning back to April 2004.

US crude production increased by 53 000 barrels per day to 9.419 million bpd, the highest on weekly records tracked since January 1983.

The market reversed daily movement later in the day as the US dollar slid against most major counterparts after Fed officials almost halved their median estimate for the target rate this year. Policy makers indicated they preferred a more gradual path to normalizing interest rates, which havent seen a hike in almost a decade and have remained at rock bottom since the 2008 crisis.

Fed Chair Janet Yellen said that slashing the borrowing cost projections was due to changes in the assessment of the economy, including lower projections for inflation which has seen strong downward pressure by cheap oil. However, Ms. Yellen said that although an increase in April was unlikely, June shouldnt be ruled out.

The greenback pared sharp overnight losses on Thursday, resuming pressure on dollar-denominated commodities. The US dollar index for settlement in June traded 0.65% higher at 99.420 at 8:26 GMT, shifting in a daily range of 99.530-97.365. The contract tumbled 1.2% yesterday to 98.781, having earlier fallen to a three-week low of 94.765.

David Lennox, a resource analyst at Fat Prophets in Sydney, said for Bloomberg: “We now know what the Fed target is so we’ll now focus on the oil market, and it’s not looking great.”

Oil prices have also seen pressure over the last days as investors kept a close watch on nuclear negotiations between Iran and the US. Iran’s oil minister Bijan Namdar Zanganeh said on Monday that the Islamic Republic is ready to ramp up output by 1 million barrels per day, if international sanctions were removed. US-Iran talks continued on Tuesday in Switzerland after US and European powers showed willingness to compromise on suspending UN sanctions. The Persian Gulf nation exported 1.2 million barrels per day of oil in February, according to the IEA.

Saudi Arabia, which steered OPEC into maintaining its production target at a November 27th meeting, will maintain the same policy and wont interfere in the market, Prince Turki Al-Faisal said. Leading OPEC members have voiced unwillingness to cut production rates, denying any obligation to normalize the market for non-OPEC producers by losing from their own market share.

Pivot points

According to Binary Tribune’s daily analysis, WTI May futures’ central pivot point is at $46.05. In case the contract breaches the first resistance level at $48.08, it may rise to $49.50. Should the second key resistance be broken, the US benchmark may attempt to advance $51.53.

If the contract manages to breach the first key support at $44.63, it might come to test $42.60. With this second key support broken, movement to the downside could continue to $41.18.

Meanwhile, May Brent’s central pivot point is projected at $55.14. The contract will see its first resistance level at $57.61. If breached, it may rise and test $59.30. In case the second key resistance is broken, the European crude benchmark may attempt to advance $61.77.

If Brent penetrates the first key support at $53.45, it could continue down to test $50.98. With the second support broken, downside movement may extend to $49.29 per barrel.