Crude oil trading outlook: futures head for seventh monthly loss amid glut

West Texas Intermediate and Brent crude were headed for the longest monthly losing streak since January 2009 as rising US crude oil output and inventories exacerbated worries of a global supply overhang at times of slowing economic growth. A firm dollar also weighed.

US crude for delivery in March rose 0.22% to $44.63 per barrel by 8:30 GMT, having shifted in a narrow daily range of $44.74-$44.43. The contract rose 0.18% yesterday to $44.53, but not before it fell to $43.58, the lowest since March 2009.

Meanwhile on the ICE, Brent for settlement in the same month slid 0.22% to $49.02 a barrel, ranging between $49.24 and $48.76 for the day. The European benchmark crude rose by 1.36% to $49.13 on Thursday, settling at a premium of $4.60 to its US counterpart. The gap narrowed to $4.39 on Friday.

Oil prices extended losses for a seventh month after US production surged to the highest in more than three decades, while OPEC stood firm and denied an obligation to normalize prices by cutting its own output. Saudi Arabias King Salman, who earlier in January succeeded the deceased King Abdullah, kept Oil Minister Ali Al-Naimi at his post, signaling he will adopt no change to the kingdoms oil policy. Saudi Arabia, OPECs leading producer, steered the group into retaining its production quota at 30 million bpd at a November 27th meeting in Vienna, in a push to defend market share and curb US shale supply.

US crude output jumped by 27 000 barrels per day to 9.213 million bpd in the week ended January 23rd, a record for weekly statistics tracked since January 1983. The Energy Information Administration also 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.

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.

Firm dollar

A plunging dollar earlier in the week gave dollar-denominated commodities a breather after an unexpected drop in US durable goods orders sent the greenback falling by almost 1% against a basket of major trading peers. The dollar, however, recovered most of the losses after the Federal Reserve signaled optimism in its outlook for the US economy, supporting the view for an interest rate hike this year.

The US dollar index for settlement in March was down 0.28% at 94.745 at 08:30 GMT. The US currency gauge gained 0.30% on Thursday to 95.011. 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.

Following a two-day policy meeting, the Federal Open Market Committee 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 Fed’s 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 won’t reach “normal” levels until 2017.

Expectations for slower global economic growth, including news for a reduction in Chinas expansion target for the year, also helped paint a negative picture for oil in the short term.

However, some support will be drawn as new crude reserves regulations in China will boost demand in the near term. Refiners will be expected to keep stockpiles amounting to 15 days of average throughput, forcing commercial traders to import crude in order to comply with the requirements. Nevertheless, the overall market remained week, analysts said, with Chinas demand growth set to moderate compared to recent years.

Investors are now eyeing todays US GDP data for the fourth quarter to gauge demand prospects from the worlds top consumer, as well as the dollars valuation outlook. Analysts broadly expect the US economy to have grown by 3.0% in the three months through December, compared to 5.0% in the third quarter. Also due later today are consumer inflation and unemployment rate in the Eurozone.

Pivot points

According to Binary Tribune’s daily analysis, West Texas Intermediate March futures’ central pivot point is at $44.36. In case the contract breaches the first resistance level at $45.13, it may rise to $45.74. Should the second key resistance be broken, the US benchmark may attempt to advance $46.51.

If the contract manages to breach the first key support at $43.75, it might come to test $42.98. With this second support broken, movement to the downside could continue to $42.37.

Meanwhile, March Brent’s central pivot point is projected at $48.92. The contract will see its first resistance level at $49.46. If breached, it may rise and test $49.80. In case the second key resistance is broken, the European crude benchmark may attempt to advance $50.34.

If Brent manages to penetrate the S1 level at $48.58, it could continue down to test $48.04. With the second support broken, downside movement may extend to $47.70 per barrel.