Crude oil trading outlook: WTI futures drop ahead of US inventory report

West Texas Intermediate fell on Wednesday after private data showed an 11th straight weekly build in US crude inventories and investors eyed todays government data for confirmation. A weaker dollar eased some of the pressure.

US crude for delivery in May traded 0.63% lower at $47.21 per barrel at 8:30 GMT, shifting in a daily range between $47.75 and $47.00. The contract gained for a third day on Tuesday, adding 0.13% to $47.51.

Meanwhile on the ICE, Brent for settlement in the same month was up 0.11% at $55.17 a barrel, ranging between $55.30 and $54.70 for the day. The contract slipped 1.45% on Tuesday to $55.11, settling at a premium of $7.60 to its US counterpart, compared to $8.47 on Monday. The gap widened to $7.96 on Wednesday.

US crude resumed a decline on Wednesday after an industry report by the American Petroleum Institute showed US crude oil inventories jumped by 4.8 million barrels last week, an eleventh consecutive weekly increase that brought stockpiles to their highest in more than 80 years. Motor gasoline supplies fell by 2.6 million barrels, while the distillate fuel category saw a drop ob 0.64 million barrels, API said.

Official statistics by the Energy Information Administration are expected to show today a 5.13-million-barrel jump in US crude oil inventories, while gasoline and distillate fuel stockpiles likely fell by 1.63 and 0.83 million barrels, respectively. The government data is deemed more reliable than APIs figures as the trade association bases its report on voluntary information provided by operators of refineries, pipelines and bulk terminals, while the government requires reports be filed with the EIA.

Baker Hughes Inc. said on Friday that US oil producers idled another 41 oil rigs last week, a fifteenth straight decline that brought their total count to 825, the lowest in over four years. However, the drop was smaller than those in the previous two weeks and the average 59 for February, showing signs of slowing down.

Although oil explorers have idled 750 sites since early-December, US crude output remains at a peak as the biggest shale wells continue to operate. Some analysts expect the idling of rigs to effectively curb US production in the second half of the year.

The EIA reported last week that crude stockpiles surged by 9.622 million barrels to 458.5 million in the seven days through March 13th, the highest in more than 80 years, while 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. Crude production increased by 53 000 barrels per day to 9.419 million bpd, the highest on weekly records tracked since January 1983.

Morgan Stanley said in a note, cited by CNBC: “U.S. crude stocks will build through May … which should support bearish sentiment for now.”

Upbeat economic data from Europe and the US fanned some positive sentiment toward the equations demand side, coupled with a weaker dollar that eased pressure on dollar-denominated commodities.

However, concerns over slowing growth in China continue to weigh on sentiment. Preliminary private data showed yesterday that activity in China’s sector of manufacturing contracted in March to an 11-month low. The HSBC Flash China Manufacturing PMI fell to 49.2 from 50.7 in February, compared to projections for 50.6. The final reading is due out on April 1st.

Adding to pressure were comments by a Sinopec trading executive that Chinas strategic petroleum reserves were reaching full capacity. The Asian country imported record amounts of crude to fill stockpiles with cheap oil after the market rout began in June, but existing storage capacity was now reaching its limit.

On top of the record US crude output and sluggish global demand growth, a report earlier in the week showed that leading OPEC producer Saudi Arabia was pumping about 10 million barrels per day of crude, near an all-time record. The Organization of the Petroleum Exporting Countries pumped 30.6 million barrels in February, exceeding its targeted production pace for a ninth straight month.

“We expect crude prices to be pressured once again by the weight of some 2 million barrels per day of oversupply in Q2 2015,” energy consultancy FGE said in a note, cited by CNBC.

Saudi Arabia’s Oil Minister Ali al-Naimi said on Sunday he was optimistic about the market and that his country would not reduce output to normalize prices unilaterally, calling for non-OPEC cooperation on any production cuts. The kingdom is able to meet demand from any customer, al-Naimi said.

Pivot points

According to Binary Tribune’s daily analysis, WTI May futures’ central pivot point is at $47.58. In case the contract breaches the first resistance level at $48.49, it may rise to $49.47. Should the second key resistance be broken, the US benchmark may attempt to advance $50.38.

If the contract manages to breach the first key support at $46.60, it might come to test $45.69. With this second key support broken, movement to the downside could continue to $44.71.

Meanwhile, May Brent’s central pivot point is projected at $55.58. The contract will see its first resistance level at $56.32. If breached, it may rise and test $57.52. In case the second key resistance is broken, the European crude benchmark may attempt to advance $58.26.

If Brent penetrates the first key support at $54.38, it could continue down to test $53.64. With the second support broken, downside movement may extend to $52.44 per barrel.