Crude oil trading outlook: futures ease, US rig count extends drop

West Texas Intermediate and Brent crude dipped on Monday after rising for a third straight week as investors weighed a further drop in the number of active US oil rigs against analysts view that the market remains oversupplied, with no imminent change to come. A possible halt in Libyas entire crude output also lent some support.

US crude for delivery in April fell by 1.12% to $53.07 per barrel by 8:21 GMT, having shifted between $54.53 and $53.03 during the day. The contract rose 2.9% on Friday to $53.67, settling the week 2.1% higher. Floor trading will be suspended on Monday due to the Presidents Day holiday and transactions will be booked on Tuesday for settlement purposes.

Meanwhile on the ICE, Brent for settlement in the same month traded at $60.92, down 0.98% on the day, holding in a daily range of $62.32-$60.87. The European benchmark crude jumped 3.8% on Friday to $61.52, settling the week 4.8% higher. Brent traded at a premium of $7.85 to its US counterpart, matching the prior sessions close.

Oil prices fell by almost 50% in 2014 as US crude output surged to the highest in more than three decades, while OPEC decided at a November 27 meeting to reaffirm its previous production quota of 30 million barrels per day in a stance to defend market share.

The market regained some of the lost ground this year, rebounding from six-year lows following three weeks of gains, as industry data showed a significant reduction in the number of active US oil rigs. Baker Hughes Inc. reported that drillers idled 84 rigs last week, bringing the total count to 1 056, the fewest since August 2011. Their number has fallen by 519, or 33%, over the past ten weeks.

However, many analysts remained skeptical of what the rig count reduction would do for the market in the near term as US crude output remains at the highest since the 1980s while the EIA projects total output to rise even further in 2015.

Bank of America Merrill Lynch said on Friday: “We continue to believe that neither supply nor demand will respond materially near-term. On our estimates, global supply is running 1.4 million barrels per day above global demand in 1H15, up from 0.9 in 4Q14. We reiterate our view that Brent will trade below $40 per barrel over the next two months.”

Data by the Energy Information Administration showed last week that US crude output surged 49 000 barrels per day to 9.226 million bpd, the highest for weekly statistics dating back to January 1983, while inventories rose to 417.9 million barrels in the seven days through February 6th, the highest level for this time of the year in more than 80 years. Supplies at the Cushing, Oklahoma storage hub, were at the highest in a year.

The government agency kept its 2015 and 2016 domestic crude output outlook mostly unchanged in February, projecting this year’s production pace to surge to 9.30 million bpd, the most since 1972.

Libya conflict

Easing some pressure on the supply side, the state-run National Oil Corporation said it would halt the countrys entire output, if authorities fail to bring under control a wave of attacks on oil infrastructure that have slashed nationwide production to the lowest in a year.

Mohamed Elharari, a National Oil Corp. spokesman, said that a fire at a pipeline carrying oil to the Hariga port has been extinguished and will be re-opened in a week. Libya, the holder of Africas biggest crude oil reserves, pumped around 300 000 barrels per day in January, less than a fifth of its 1.6-million-bpd output in 2011 before Muammar Qaddafi was ousted.

Also providing support, Japans economy exited a recession in the fourth quarter, albeit growing at a slower pace than projected. The Asian nation achieved an annualized GDP growth of 2.2%, preliminary data showed, compared to economists forecasts for 3.7%. The third quarters reading received a downward revision to show a contraction of 2.3%.

Pivot points

According to Binary Tribune’s daily analysis, West Texas Intermediate April futures’ central pivot point is at $53.33. In case the contract breaches the first resistance level at $54.69, it may rise to $55.72. Should the second key resistance be broken, the US benchmark may attempt to advance $57.08.

If the contract manages to breach the first key support at $52.30, it might come to test $50.94. With this second support broken, movement to the downside could continue to $49.91.

Meanwhile, April’s central pivot point is projected at $60.79. The contract will see its first resistance level at $62.50. If breached, it may rise and test $63.48. In case the second key resistance is broken, the European crude benchmark may attempt to advance $65.19.

If Brent manages to penetrate the S1 level at $59.81, it could continue down to test $58.10. With the second support broken, downside movement may extend to $57.12 per barrel.