Crude oil trading outlook: futures gain on OPEC comments, IEA Middle East warning

West Texas Intermediate and Brent crude rose on Tuesday after OPEC officials signaled optimism that the market will sustain its recent rebound, while the IEA warned of supply risks stemming from Islamic States rise in the Middle East.

US crude for delivery in April rose $0.22 to $53.89 per barrel by 8:02 GMT from Fridays close at $53.67. Floor trading was suspended on Monday due to the Presidents Day holiday and transactions will be booked today for settlement purposes.

Meanwhile on the ICE, Brent for settlement in the same month traded 0.52% higher at $61.72 a barrel, having shifted between $62.15 and $61.53 during the day. The contract slid 0.20% on Monday to $61.40 a barrel. Brent traded at a premium of $7.83 to its US counterpart, close to Fridays settlement at $7.85.

Mohammed bin Saleh Al Sada, Qatars Energy Minister, said yesterday that the oil markets trend has changed over the past few weeks and there is a sense of optimism.

Prices rebounded from Januarys six-year lows following a continued drop in the number of active US oil rigs. Drillers in the US 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.

The global supply overhang is smaller than the previously estimated 1.8 million barrels per day, said Ali Al-Omair of Kuwait, OPECs third-biggest crude producer.

Meanwhile, the International Energy Agency warned that the rise of the Islamic State in Iraq and Syria may significantly impede investment in the Middle East necessary to avoid a supply deficit in the next decade.

Fatih Birol, the IEAs lead economist, said: “The appetite for investments in the Middle East is close to zero, mainly as a result of the unpredictability of the region.”

Also providing some support on supply risks, the state-run National Oil Corporation said it would halt Libya’s 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.

Rally questionable

However, analysts have questioned the recent price rebound, citing forecasts for continuously growing US crude production and inventories at multi-decade highs.

“The market is getting increasingly dubious as to this rally, with the CFTC showing that non-commercial net long positions are starting to fall,” ANZ bank said in note, cited by CNBC.

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.

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.”

Goldman Sachs said on Monday that the 10-week long drop in US rig counts wont suffice to halt production growth and that lower prices may be needed to balance the market as US production could still surge by 600 000 bpd in the fourth quarter from a year earlier.

In economic data, Japans economy swung out of recession in the fourth quarter, but posted a slower-than-expected growth. The Asian nation achieved an annualized GDP growth rate of 2.2%, according to preliminary data, as household and corporate spending disappointed. This compared to economists’ forecasts for 3.7%, while the third quarter’s reading received a downward revision to show a contraction of 2.3%.

In China, house prices fell by an annualized 5.1% in January, the National Bureau of Statistics reported on Tuesday, marking the fifth straight monthly decline. Market players now eyed consumer and producer inflation in the UK, as well as economic sentiment figures from Germany and the Eurozone and manufacturing data from the US.

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 $61.56. The contract will see its first resistance level at $62.41. If breached, it may rise and test $63.42. In case the second key resistance is broken, the European crude benchmark may attempt to advance $64.27.

If Brent manages to penetrate the S1 level at $60.55, it could continue down to test $59.70. With the second support broken, downside movement may extend to $58.69 per barrel.