Crude oil trading outlook: futures drop ahead of Iran talks deadline

West Texas Intermediate and Brent crude slid for a third day on fears of a nuclear deal between Iran and major world powers that would allow the Islamic Republic to release more than 1 million bpd of crude in the already oversupplied global market. Investors also weighed a stronger US dollar and expectations for another build in US crude supplies.

West Texas Intermediate for delivery in May fell 1.75% to $47.83 per barrel by 7:22 GMT, shifting in a daily range of $48.73-$47.77 a barrel. The contract slid 0.4% on Monday to $48.68.

Meanwhile on the ICE, Brent for delivery in the same month fell 1.40% to $55.50 per barrel, ranging between $56.33 and $55.45. The European benchmark crude fell 0.2% yesterday to $56.29 a barrel, settling at a premium of $7.61 to its US counterpart. The gap was at $7.67 on Tuesday.

Oil prices extended their drop, heading for a third straight quarterly decline, as Iran and six major powers neared a deadline by the end of Tuesday to come up with a preliminary agreement that would pave the way for a final one in June. The United States, France, Germany, Britain, Russia, and China are trying to break a decade-long standoff on Irans nuclear activities in exchange for lifting tough international economic sanctions.

Although officials have said that progress is being made, it remains uncertain how talks that may continue into the final hours of the Tuesday deadline will conclude.

David Lennox, a resource analyst at Fat Prophets in Sydney, said for Bloomberg: “If there’s an agreement, that could release a fair bit of oil into the market. The price has been reasonably resilient given all the downside potential.”

Iran could boost oil output by around 500 000 barrels per day in three to six months after sanctions are lifted, Facts Global Energy said, and raise production by an additional 700 000 bpd over the next year.

The Persian Gulf nation has somewhere between 7 and 35 million barrels of oil stored, according to estimates by ship-brokers and government officials, which are expected to be the first sold on international markets should sanctions be removed.

Oil prices have also been kept under pressure by expectations for a yet another jump in US crude oil inventories that would bring them to a new record. The Energy Information Administration is expected to report that crude stockpiles rose by around 4.2 million barrels in the week ended March 27th, while gasoline and distillate fuel stockpiles probably fell by 0.88 and 0.73 million barrels, respectively.

EIA data showed last Wednesday that US crude oil inventories rose by 8.170 million barrels to 466.7 million, 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.

Pivot points

According to Binary Tribune’s daily analysis, WTI May futures’ central pivot point is at $48.48. In case the contract breaches the first resistance level at $49.36, it may rise to $50.03. Should the second key resistance be broken, the US benchmark may attempt to advance $50.91.

If the contract manages to breach the first key support at $47.81, it might come to test $46.93. With this second key support broken, movement to the downside could continue to $46.26.

Meanwhile, May Brent’s central pivot point is projected at $56.05. The contract will see its first resistance level at $56.89. If breached, it may rise and test $57.50. In case the second key resistance is broken, the European crude benchmark may attempt to advance $58.34.

If Brent penetrates the first key support at $55.44, it could continue down to test $54.60. With the second support broken, downside movement may extend to $53.99 per barrel.