Crude oil trading outlook: futures steady amid US rig cuts, China imports weigh

West Texas Intermediate and Brent were steady on Monday as investors weighed a further drop in the number of active US oil rigs against downbeat trade data from China, coupled with a persisting strike at US refineries.

US crude for delivery in March traded 0.27% higher at $51.83 per barrel at 8:42 GMT, having shifted between $53.40 and $51.65 a barrel. The contract rose 2.40% on Friday to $51.69, settling the week 7.2% higher, the biggest weekly gain in almost four years.

Meanwhile on the ICE, Brent for settlement in the same month traded at $57.59 a barrel, down 0.36% on the day, having held in a daily range of $59.06-$57.39. The contract jumped 2.17% on Friday to $57.80, closing the week ~9% higher, its best showing since February 2011. The European crude benchmark traded at a premium of $5.76 to its US counterpart, down from Fridays settlement at $6.11.

Data by Baker Hughes Inc. showed on Friday that the number of active US oil rigs slid by 83 to 1 140, the lowest since December 2011. The total rig count has dropped by a record 435 in nine weeks, a clear sign US oil producers are starting to adjust to the oversupplied market.

However, US crude output remained near the highest in more than three decades in the week ended January 30th, data by the EIA showed. The US pumped 9.177 million barrels per day, compared to the record 9.213 million a week earlier, while crude inventories surged by 6.333 million barrels to 413.1 million barrels, the highest for weekly EIA data spanning back to 1982 and the most since 1931 for monthly data.

Supplies at the Cushing, Oklahoma storage hub jumped from 38.9 million barrels a week earlier to 41.4 million, the highest in a year. Inventories there have doubled since October 17th.

Upbeat employment data from the US on Friday also provided support, with US non-farm payrolls coming in at a better-than-expected 257 000 in January, while the preceding months reading saw an upward revision to 329 000, although the unemployment rate inched up to 5.7%.

Persisting conflicts in Libya, holder of Africas biggest crude reserves, also helped sustain gains as a strike by security guards closed the eastern oil port of Hariga.

However, the latest sign of an economic slowdown in China exacerbated fears of slower demand growth from the worlds second-biggest consumer. Exports fell by an annualized 3.3% in January, defying analysts projections for a 6.3% jump, while inbound shipments plummeted 19.9% as opposed to anticipations for a moderate 3.0% decline. In addition, Chinese crude oil imports tumbled 7.9% last month to 6.6 million barrels per day from a record high in December.

Andrew Polk, economist at the Conference Board in Beijing, said, cited by CNBC: “Import data suggest a substantial slowdown in the industrial sector. The first quarter looks to be pretty horrible.”

A prolonged strike at US refineries threatened to further curb crude demand in the US. The United Steelworkers union, which represents employees at more than 200 refineries, chemical plants, fuel terminals and pipelines, said it will resume talks with lead negotiator Royal Dutch Shell on February 10th on a national labor contract affecting 30 000 oil workers. The union initiated strike action on February 1st after turning down 5 wage proposals, and has declined one more since then.

Pivot points

According to Binary Tribune’s daily analysis, West Texas Intermediate March futures’ central pivot point is at $51.86. In case the contract breaches the first resistance level at $52.99, it may rise to $54.30. Should the second key resistance be broken, the US benchmark may attempt to advance $55.43.

If the contract manages to breach the first key support at $50.55, it might come to test $49.42. With this second support broken, movement to the downside could continue to $48.11.

Meanwhile, March Brent’s central pivot point is projected at $57.86. The contract will see its first resistance level at $59.00. If breached, it may rise and test $60.21. In case the second key resistance is broken, the European crude benchmark may attempt to advance $61.35.

If Brent manages to penetrate the S1 level at $56.65, it could continue down to test $55.51. With the second support broken, downside movement may extend to $54.30 per barrel.