Crude oil trading outlook: futures steady after EIA data, US economy

West Texas Intermediate and Brent crude were little changed on Thursday after snapping four days of losses yesterday as US crude oil stockpiles slid more than expected and the US economy showed further signs of robust recovery.

US crude for delivery in February traded 0.21% higher at $48.75 per barrel on the New York Mercantile Exchange at 8:18 GMT, having shifted in a daily range of $49.65-$48.42 per barrel. The contract jumped 1.5% on Wednesday to $48.65, rebounding from a fresh 5-1/2-year low and ending a four-session losing streak.

Meanwhile on the ICE, Brent for settlement in the same month fell 0.12% to $51.09 a barrel. Prices shifted in a daily range of $51.91-$50.80. The European benchmark crude rose 0.10% on Wednesday to $51.15, rebounding from a 5-1/2-year intraday low of $49.66. Brent traded at a premium of $2.34 to its US counterpart, down from yesterdays settlement at $2.50.

Data by the EIA showed that US crude oil inventories slid by 3.062 million barrels to 382.4 million in the week ended January 2nd, beating analysts’ projections for a fall of 0.7-0.9 million barrels. The market initially pared its daily advance following the reports release, but the unexpectedly large inventory decline provided a much-needed support throughout the day. However, upside movement was capped as the remaining figures indicated softening underlying demand.

Inventories at the Cushing, Oklahoma storage hub rose to 32.1 million barrels from 30.8 million a week earlier. US crude production edged up by 11 000 barrels per day to 9.132 million, drawing closer to a multi-decade record reached in the week ended December 12th, 2014, while imports fell to 6.856 million bpd from 7.061 million a week earlier.

Refineries operated at 93.9% of their operable capacity, down from 94.4% the previous week. Both gasoline and distillate fuel production decreased and averaged 8.7 and 5.2 million barrels per day, respectively.

Further pointing to softening demand, distillate fuel inventories surged by 11.205 million barrels last week to 136.9 million, confounding analysts’ expectations for a moderate increase of 1.860 million. Motor gasoline stockpiles also registered a hefty gain, having risen by 8.115 million barrels to 237.2 million, whereas analysts had forecast a jump of 3.380 million barrels. The two categories combined 19.3-million jump was the highest on record.

US economy, Fed minutes

A brighter outlook for the US economy provided some support, implying better demand in the long term. Data by Automatic Data Processing showed that private US non-farm employers added 241 000 jobs in December, compared to projections for 226 000, while Novembers reading was revised up to show a 227 000 gain. The ADP figure is generally considered as an early employment estimate before the governments all-important jobs report is released two days later.

Meanwhile, minutes from FOMCs December meeting showed that policy makers were unlikely to begin raising interest rates at least for their next couple of meetings, i.e. before April 28-29. However, dropping the pledge to keep borrowing costs at rock bottom for “considerable time” and replacing it with a “patient” stance suggested a lift-off at some point in 2015 amid strong consumer confidence and payroll gains.

The committee also mulled over overseas risks, including the recent oil price rout, and concluded that they were largely offset by robust domestic growth. Concerns were also expressed about inflation running below Feds 2% target for 31 straight months, with the central banks preferred gauge – personal consumption expenditures – standing at 1.2% for the year through November. However, the committee said it expects inflation to near the targeted level as the labor market improves and the effects of cheaper energy diminish.

Global output

The market also drew some support on speculations for lower US crude output growth as tumbling prices cause more expensive production to be scaled back. Output growth in the US may be 800 000 barrels lower than previously estimated in 2016, David Hewitt, the co-head of global oil and gas equity research at Credit Suisse said, cited by Bloomberg. The bank had previously projected US producers to pump 1.3 million barrels per day more in 2015 and an additional 1.4 million bpd in 2016.

Even so, record-high, and rising, output from other major consumers will ensure cheaper oil for some time to come. Government data showed that Russia’s oil output jumped 0.3% to 10.667 million barrels per day in December, a post-Soviet record, while Iraq, OPEC’s second-biggest producer, shipped 2.94 million bpd last month, the most in three decades, Oil Ministry spokesman Asim Jihad said.

Moreover, Iraq plans to further boost exports in January to 3.3 million barrels per day after it reached an accord with its semi-autonomous Kurdish region in December over oil exports through Turkey.

Meanwhile, a permanent resolution to the decade-long standoff between Iran and major Western powers on the Islamic republics nuclear program would lift sanctions that have battered its economy, allowing for a capacity of as much as 500 000 barrels per day to flow into the global oil market.

Pivot points

According to Binary Tribune’s daily analysis, West Texas Intermediate February futures’ central pivot point is at $48.26. In case the contract breaches the first resistance level at $49.70, it may rise to $50.74. Should the second key resistance be broken, the US benchmark may attempt to advance $52.18.

If the contract manages to breach the first key support at $47.22, it might come to test $45.78. With this second support broken, movement to the downside could continue to $44.74.

Meanwhile, February Brent’s central pivot point is projected at $50.88. The contract will see its first resistance level at $52.11. If breached, it may rise and test $53.06. In case the second key resistance is broken, the European crude benchmark may attempt to advance $54.29.

If Brent manages to penetrate the S1 level at $49.93, it could continue down to test $48.70. With the second support broken, downside movement may extend to $47.75 per barrel.