Crude oil trading outlook: WTI futures hold near $49 on inventory build, Brent heads to $58

West Texas Intermediate and Brent crude extended losses to a fifth session as the outlook for a persisting global supply overhang offset optimism for the global economys recovery pace. Investors eyed weekly US inventory data that would likely show supplies rose to a new record.

US crude for delivery in April fell 1.11% to $48.90 per barrel by 8:38 GMT, having shifted in a daily range of $49.66-$48.68. The American crude benchmark tumbled 2.7% on Monday to $49.45, settling below $50 for the first time since February 11th.

Meanwhile on the ICE, Brent for settlement in the same month traded 0.75% lower at $58.46 a barrel, varying in a daily range of $59.28-$58.10. The contract slid 2.2% yesterday to $58.90, settling at a premium of $9.45 to its US counterpart. The gap widened to $9.56 on Tuesday.

Oil prices fell by almost 50% in 2014 as US crude production rose to the highest in more than three decades, while OPEC signalled determination to protect its market share and reached a collective decision at a November 27th meeting not to cut output. The market found support after falling to the lowest in six years in January as US drillers idled more than a third of active oil rigs, pressured by lower prices.

Baker Hughes Inc. reported on Friday that the number of rigs targeting oil in the US fell by 37 to 1 019 last week, the lowest since July 2011, marking a 35% cut in eleven straight weeks.

However, cutting the number of active rigs hasnt stopped US crude output from reaching new multi-decade peaks, while US crude oil inventories are at the highest in 80 years. The Energy Information Administration reported last week that US producers pumped 9.28 million barrels per day of crude in the seven days through February 13th, the most on records dating back to January 1983, while crude stockpiles surged by 7.716 million barrels to 425.6 million.

The market extended its drop on Tuesday as this weeks inventory report is expected to show a further 4-million-barrel gain in US crude inventories, while analysts project a decline in motor gasoline and distillate fuel inventories. Industry group the American Petroleum Institute will release its separate supply data at 21:30 GMT on Tuesday.

Ric Spooner, a chief strategist at CMC Markets in Sydney, said for Bloomberg: “Traders are wrestling with two key dynamics at the moment – the fact that supply is exceeding demand and that’s evidenced by growing U.S. inventories against a presumption by some that supplies are going to moderate.”

Also weighing on the outlook for US crude demand, negotiations between the United Steelworkers Union and oil companies led by Royal Dutch Shell are not expected to resume this week, keeping in effect a strike affecting 12 refineries that account for a fifth of national refining capacity.

Oil prices drew some support yesterday after the Financial Times cited Nigerias oil minister as saying the country will call for an extraordinary OPEC meeting, if the price rout continues. However, an OPEC delegate said on Monday that the group has had no concrete talks about holding emergency discussions. The oil cartel exceeded its collective quota of 30 million bpd in January for an eight straight month.

Also helping limit losses were upbeat economic data from Europe. The Ifo Institute for Economic Research reported yesterday that business confidence in Germany rose to the highest since July in February, with the respective index inching up to 106.8 from 106.7 in January.

Meanwhile, Germanys statistics agency reported on Tuesday that the leading EU economy expanded by an annualized 1.6% in the fourth quarter, outstripping projections for an 1.5% expansion, while quarter-on-quarter growth matched expectations for 0.7%. Investors now eyed todays consumer and core consumer inflation from the Eurozone, the Conference Boards US consumer confidence report and Janet Yellens testimony before the Senate Banking Committee.

Pivot points

According to Binary Tribune’s daily analysis, West Texas Intermediate April futures’ central pivot point is at $49.70. In case the contract breaches the first resistance level at $50.74, it may rise to $52.02. Should the second key resistance be broken, the US benchmark may attempt to advance $53.06.

If the contract manages to breach the first key support at $48.42, it might come to test $47.38. With this second support broken, movement to the downside could continue to $46.10.

Meanwhile, April’s central pivot point is projected at $59.31. The contract will see its first resistance level at $60.26. If breached, it may rise and test $61.61. In case the second key resistance is broken, the European crude benchmark may attempt to advance $62.56.

If Brent manages to penetrate the S1 level at $57.96, it could continue down to test $57.01. With the second support broken, downside movement may extend to $55.66 per barrel.