Crude oil trading outlook: futures pare weekly gains as supply fears ease

West Texas Intermediate and Brent crude trimmed hefty overnight gains as concerns eased that Saudi-led attacks on Yemeni rebels would cripple Mideast crude supplies. Investors eyed US GDP data to gauge the recovery state of the worlds biggest economy.

US crude for delivery in May traded 1.71% lower at $50.55 per barrel at 8:10 GMT, shifting in a daily range of $51.38-$50.25. The contract surged 4.5% on Thursday to $51.43, the highest close since March 4th, and is up over 8% for the week so far.

Meanwhile on the ICE, Brent for delivery in the same month was down 1.59% at $58.25 a barrel, ranging between $59.04 and $57.93 for the day. The contract soared 4.8% yesterday to $59.19, having earlier touched $59.78, the highest since March 9th. Brent traded at a premium of $7.70 to its US counterpart, down from Thursdays settlement at $7.76.

Oil prices gave back some of the recent gains as fears of Middle East supply disruptions eased, but market players remained wary. Saudi Arabia led an attack by a coalition of Gulf Arab allies against positions of Houthi rebels in the capital of Yemen Sanaa. The rally in oil prices was driven by fears of a possible impact on the Bab el-Mandeb strait, a bottleneck used to ship more than 3.4 million barrels of oil per day. Closing the strait would force tankers delivering Mideast oil to European and American markets to sail around the southern tip of Africa, additionally hurting the already oversupplied market.

Investors also feared that clashes between the Saudi-led coalition of 10 Sunni-ruled nations against Shiite rebels in Yemen, which have been supported by Iran, could spill into neighboring major oil producers, having a much more significant impact on the oil market.

Michael McCarthy, a chief strategist at CMC Markets in Sydney, said for Bloomberg: “While we’ve got no actual supply disruption, it’s pretty clear that the market is focused on the potential here, which is enormous. We’re likely to see a further increase in volatility as the price reacts to developments.”

The coalition launched a new wave of bombings on Sanaa and an air base near the southern port city of Aden on Thursday following the initial airstrikes on Wednesday evening that came after rebels marched on Aden where forces loyal to Yemens legitimate president had rallied. President Abdrabbuh Mansour Hadi has arrived in Saudi Arabias capital Riyadh, officials said on Friday, and will attend a two-day Arab summit in Egypt on Saturday.

Investors questioned how sustainable the added geopolitical risk premium is, and expect oil, particularly Brent, to pare recent gains should there be no further escalation in tensions.

ANZ analysts said that a nuclear deal between Iran and major world powers would have bigger implications on the oil market as a lifting of economic sanctions, including a curb on Iranian crude oil exports, would allow the Islamic Republic to add more than 1 million bpd to the already saturated oil market.

Data by the Energy Information Administration showed on Wednesday that US crude oil inventories rose by 8.170 million barrels to 466.7 million in the seven days ended March 20th, the highest in at least 80 years. Stockpiles at the Cushing, Oklahoma storage hub jumped to 56.3 million barrels from 54.4 million a week earlier, the most on weekly data spanning back to April 2004.

US crude oil production inched up by 3 000 barrels per day to 9.422 million bpd, the highest on weekly records started in January 1983.

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.

Investors also eyed key economic data from the US later today for clues on when the Fed might begin raising interest rates and to gauge demand prospects in the worlds top consumer. The Commerce Department is expected to report at 12:30 GMT that the US economy grew by an annualized 2.4% in the fourth quarter, while the University of Michigan will likely say that consumer sentiment declined in March from a month earlier.

Pivot points

According to Binary Tribune’s daily analysis, WTI May futures’ central pivot point is at $50.88. In case the contract breaches the first resistance level at $53.03, it may rise to $54.63. Should the second key resistance be broken, the US benchmark may attempt to advance $56.78.

If the contract manages to breach the first key support at $49.28, it might come to test $47.13. With this second key support broken, movement to the downside could continue to $45.53.

Meanwhile, May Brent’s central pivot point is projected at $58.42. The contract will see its first resistance level at $60.55. If breached, it may rise and test $61.90. In case the second key resistance is broken, the European crude benchmark may attempt to advance $64.03.

If Brent penetrates the first key support at $57.07, it could continue down to test $54.94. With the second support broken, downside movement may extend to $53.59 per barrel.