Crude oil trading outlook: futures steady at low levels, EIA inventory data eyed

West Texas Intermediate and Brent crude rose on Wednesday after registering hefty losses the prior session as the market seemed to be drawing support at the current low levels and as BHP Billiton said it will reduce the number of active drill rigs in the US. Upside movement, however, was capped by expectations for another weekly jump in US crude oil stockpiles and the outlook for a stronger dollar.

US crude for delivery in March rose 1.23% by 8:34 GMT to $47.04 per barrel, having shifted in a daily range of $47.13-$46.61. The contract settled 5.4% lower on Tuesday at $46.47 a barrel.

Meanwhile on the ICE, Brent for settlement in the same month rose 1.21% to $48.57 a barrel, having ranged between $48.78 and $48.21 during the day. The contract closed 1.74% lower on Tuesday at $47.99 at a premium of $1.52 to its US counterpart. The gap inched up to $1.53 on Wednesday.

Oil prices plunged this week after the International Monetary Fund followed the World Bank into slashing its global growth outlook for this year and the next, saying that most major economies, apart from the US and Spain, will experience a slowdown in expansion. The global economy will grow by 3.5% this year, compared to earlier estimates for 3.8% in October, while the 2016 outlook was revised down to 3.7% from 4.0%.

China posted its slowest annual GDP growth last year since 1990 after the worlds second biggest economy expanded by 7.3% in the fourth quarter, pushing full-year growth down to 7.4%. The Asian country will account for 11% of global oil consumption this year, according to data by the International Energy Agency.

OPEC production

Meanwhile, Iran voiced confidence that its oil industry is strong enough to withstand an even steeper drop in oil prices. “If the oil prices drop to $25 a barrel, there will yet again be no threat posed to Iran’s oil industry,” Oil Minister Bijan Namdar Zanganeh said, cited by the state-run Fars news agency.

Iraq, OPECs second-largest producer, is expected to boost exports this year to 3.3 million barrels per day, with production already running at a record 4 million bpd, according to Oil Minister Adel Abdul Mahdi.

Oil prices have fallen by more than 50% since a June peak as the US pumps at the highest pace in more than three decades, while OPEC resisted calls to cut its own output, exacerbating concerns that slowing global economic growth will fail to soak the additional supply. Major OPEC producers have underscored their determination to retain market share and have ruled out an extraordinary meeting before the next scheduled one in Vienna on June 5th.

OPEC officials have attributed the price rout to rising supplies outside the group, saying that OPEC bears no responsibility and therefore shouldnt feel obliged to reduce its own market share in order to stabilize the market.

Data by the Energy Information Administration showed last week that US crude output surged by 60 000 barrels per day to 9.192 million bpd in the seven days ended January 9th, the highest level for weekly data dating back to January 1983. The jump is evidence that the advance in production technologies has allowed for record-high output levels to be maintained even as investments are cut and rigs are idled.

According to Baker Hughes Inc, US drillers have idled 209 oil rigs since December 5th, the most for a six-week period since the company started tracking data in 1987.

Meanwhile, BHP Billiton Ltd, the biggest overseas investor in US shale, said it will cut the number of its rigs in the US to 16 from 26 in July, or about 40%. Drilling and development spending on US onshore oil and gas slid to $1.9 billion in the six months ended December 31st from a year earlier, the company said.

Ric Spooner, chief strategist at CMC Markets in Sydney, said for Bloomberg: “Their plans to cut oil drilling rigs in the U.S. is a pointer to what’s to come in the oil market. We will eventually see a supply response to the drop in the oil price from the U.S. onshore producers.”

Stockpiles

US crude oil stockpiles probably rose by 2.6 million barrels in the week ended January 16th, the Energy Information Administration is expected to report on Thursday, a day later than normal due to Mondays Martin Luther King, Jr. Day. Supplies surged by 5.39 million barrels the previous week. Gasoline inventories likely jumped by 1.233 million barrels after adding 3.171 million last week.

A strong dollar also dragged on the oil market, with its value expected to further appreciate, if expectations for the ECB to announce a quantitative easing program at its policy meeting tomorrow come true.

The US dollar index for settlement in March was down 0.25% at 93.115 at 08:32 GMT, holding in a daily range of 93.315-92.970. The US currency gauge gained 0.49% on Tuesday to 93.349. A stronger greenback makes dollar-denominated commodities more expensive for holders of foreign currencies and curbs their appeal as an alternative investment, and vice versa.

Pivot points

According to Binary Tribune’s daily analysis, West Texas Intermediate March futures’ central pivot point is at $47.34. In case the contract breaches the first resistance level at $48.33, it may rise to $50.20. Should the second key resistance be broken, the US benchmark may attempt to advance $51.19.

If the contract manages to breach the first key support at $45.47, it might come to test $44.48. With this second support broken, movement to the downside could continue to $42.61.

Meanwhile, March Brent’s central pivot point is projected at $48.42. The contract will see its first resistance level at $49.05. If breached, it may rise and test $50.12. In case the second key resistance is broken, the European crude benchmark may attempt to advance $50.75.

If Brent manages to penetrate the S1 level at $47.35, it could continue down to test $46.72. With the second support broken, downside movement may extend to $45.65 per barrel.