Crude oil trading outlook: futures hover near 6-year lows on record US inventories

West Texas Intermediate and Brent crude steadied on Thursday to hold near the lowest in 6 years after a report showed that US crude oil inventories rose to the highest in more than three decades, while output hit a new record as well. An improved assessment by the Federal Reserve on the US economy sounded a positive note for long-term demand prospects, but a firm dollar kept pressure on.

US crude for delivery in March traded 0.11% lower at $44.40 per barrel at 9:06 GMT, having shifted in a daily range of $44.64-$44.21. The contract plunged 3.85% on Wednesday to settle at $44.45, the lowest close since March 2009, after it hit an intraday low of $44.08.

Meanwhile on the ICE, Brent for settlement in the same month stood at $48.64 a barrel, up 0.35% for the day. Prices ranged between $48.75 and $48.37 per barrel. The European crude benchmark fell 2.28% on Wednesday to $48.47, settling at a premium of $4.02 to its US counterpart. The gap widened to $4.24 on Thursday.

Oil swung back to weekly losses on Wednesday after a bearish inventory report by the Energy Information Administration exacerbated fears of a global supply overhang that has slashed prices by more than 50% since a June peak. The EIA reported that US crude supplies surged by 8.874 million barrels in the week ended January 23rd to 406.7 million, the highest on weekly data spanning back to August 1982. Analysts had projected a jump of 4.25 million barrels.

Inventories at the Cushing, Oklahoma storage hub rose to 38.9 million barrels, from 36.8 million during the preceding period. This was an eight consecutive weekly jump, pushing supplies to the highest since January 2014.

Moreover, US crude output jumped by 27 000 barrels per day to 9.213 million bpd, a record for weekly statistics tracked since January 1983. Refinery utilization rates rose to 88% from 85.5% a week earlier, but both gasoline and distillate fuel output decreased, averaging 9.2 and 4.7 million barrels per day, respectively.

ANZ said in a note, cited by CNBC: “The market expects stockpiles to keep rising, pushing front-month prices further down as refineries enter maintenance season and are likely run at lower utilization rates.”

On the positive side, motor gasoline inventories declined by 2.587 million barrels to 238.3 million, defying analysts’ projections for a jump of 0.32 million. Distillate fuel stockpiles, which include diesel and heating oil, decreased by 3.892 million barrels to 132.7 million, exceeding an estimated drop of 1.70 million.

Fed outlook, dollar

Supporting oils demand side in the long term, the Federal Open Market Committee fanned positive sentiment about the US economys state of recovery. The Federal Reserve improved its assessment of the economy, describing the expansion as “solid” and substituting the “strong” depiction in its evaluation of job growth with “solid”.

Policy makers also downplayed fears of persistently low inflation, saying that despite a further decline in the near term is expected, inflation will likely gradually rise to the targeted 2% in the medium term as the effects of low oil prices diminish.

The Feds confidence indicated officials readiness to begin raising borrowing costs at some point in 2015, although the central bank repeated a pledge to stay “patient” on hiking interest rates and has previously said that they probably wont reach “normal” levels until 2017.

The US dollar index for settlement in March was up 0.16% at 94.880 at 09:06 GMT, holding in a daily range of 95.050-94.750. The US currency gauge gained 0.51% on Tuesday to 94.727. 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.

Also weighing on the market, leading OPEC producer Saudi Arabia said in a report it will pump 9.6 million barrels of crude oil per day this year and 9.4 million in 2016. The kingdom steered the oil cartel into retaining its production quota at 30 million bpd at a November 27th meeting in a push to curb US shale production and to defend its own market share.

Slower growth in demand from China has also fanned negative sentiment, with analysts predicting that lower oil prices would not provide a significant boost to Asian economic growth.

Data last week showed that the Chinese economy grew at the slowest pace since 1990, while the countrys manufacturing sector contracted for a second straight month in January, according to a preliminary private report.

Researchers at Energy Aspects said, cited by CNBC, that “oil consumption in China will become more efficient, leading to slower demand growth of around 0.2-0.3 million barrels per day compared to expectations of above 0.5 million.”

Pivot points

According to Binary Tribune’s daily analysis, West Texas Intermediate March futures’ central pivot point is at $44.79. In case the contract breaches the first resistance level at $45.49, it may rise to $46.54. Should the second key resistance be broken, the US benchmark may attempt to advance $47.24.

If the contract manages to breach the first key support at $43.74, it might come to test $43.04. With this second support broken, movement to the downside could continue to $41.99.

Meanwhile, March Brent’s central pivot point is projected at $48.83. The contract will see its first resistance level at $49.36. If breached, it may rise and test $50.26. In case the second key resistance is broken, the European crude benchmark may attempt to advance $50.79.

If Brent manages to penetrate the S1 level at $47.93, it could continue down to test $47.40. With the second support broken, downside movement may extend to $46.50 per barrel.