Crude oil trading outlook: futures edge lower ahead of EIA inventory data, strong dollar

West Texas Intermediate and Brent crude eased on Wednesday as investors eyed government supply data that will likely show US crude stockpiles rose to a new multi-decade peak, while the US dollar hovered near the highest in 11 years against a basket of major trading partners. A hike in Saudi delivery prices to Asia and continuing fighting in Libya underpinned the market.

US crude for delivery in April traded 0.10% lower at $50.47 per barrel at 8:10 GMT, shifting in a daily range of $50.71-$50.38. The contract gained 1.9% on Tuesday to $50.52.

Meanwhile on the ICE, Brent for settlement in the same month was 0.87% lower at $60.49 a barrel, holding in a daily range of $60.85-$60.46. The European benchmark crude gained 2.5% yesterday to $61.02, settling at a premium of $10.50 to its US counterpart. The gap narrowed to $10.02 on Wednesday.

Oil prices drew support on Tuesday after state-owned Saudi Arabian Oil Co. raised its delivery prices to Asian buyers for April by the most in three years as demand improved. Saudi Arabia, OPECs leading producer, narrowed its discount for Arab Light crude by $1.40 to $0.90 below Asias regional benchmark, the biggest price hike since January 2012. Aramco also boosted its prices to US refiners.

This comes little over three months after Saudi Arabia steered the Organization of the Petroleum Exporting Countries into reaffirming its 30-million-bpd production quota, entering a stance to defend its market share and curb US shale output.

Tony Nunan, a risk manager at Mitsubishi Corp in Tokyo, said for CNBC: “This is a sign that prices have bottomed out because it means Saudi is confident in raising prices without being afraid of losing market share.”

Baker Hughes Inc. reported on Friday that US drillers idled 33 rigs last week, bringing their count to 986, the lowest since June 2011. The total number of US rigs targeting oil has fallen by 589 over the last 12 weeks.

Although scaling back drilling activity still hasnt stopped US crude inventories from rising to new records, it would cut output growth to 385 000 bpd by the fourth quarter, according to Goldman Sachs, drawing closer to levels of market balance.

Data by the American Petroleum Institute showed on Tuesday a smaller-than-expected jump in US crude stockpiles last week. According to the trade association, inventories rose by 2.9 million barrels, below projections of 4.0 million, while gasoline supplies gained 0.53 million and distillate fuel stockpiles fell by nearly 0.3 million.

Investors eyed todays government data, which is likely to show a gain of 4.16 million barrels in US crude oil inventories, while both major refined product categories probably fell for another week.

Uncertainty about how negotiations will develop between major world powers and Iran regarding the Islamic Republics nuclear program kept downside pressure on oil. Any lasting resolution of a decade-long standoff could cause a spike in Iranian oil supply as sanctions get lifted, further flooding the already oversupplied market.

China

Private data provided by HSBC and Markit Economics showed on Wednesday that Chinas services sector expanded at a faster pace in February compared to a month earlier, with the HSBC China Services PMI coming in at 52.0, compared to 51.8 in January.

The HSBC Composite Output Index rose to a five-month high of 51.8 from Januarys 51.0, reflecting a further increase in Chinese business activity, although employers in the manufacturing sector cut staff fractionally, while job growth in services eased.

“The latest PMI data signalled that China’s service sector remained in expansionary territory in February, though the rate of growth remained modest,” said Annabel Fiddes, Economist at Markit. “However, the solid rise in new orders suggests that activity growth may pick up in the months ahead, as firms continued to add to their payroll numbers amid a positive business outlook. Meanwhile, the renewed improvement in manufacturing operating conditions suggests that the Chinese economy is on a steadier growth footing in February.”

Market players now eyed business activity data from Europe and the US throughout the day, as well as the ADP Nonfarm Employment Change, a precursor to Fridays all-important jobs report by the US Department of Labor.

Pivot points

According to Binary Tribune’s daily analysis, West Texas Intermediate April futures’ central pivot point is at $50.27. In case the contract breaches the first resistance level at $51.08, it may rise to $51.65. Should the second key resistance be broken, the US benchmark may attempt to advance $52.46.

If the contract manages to breach the first key support at $49.70, it might come to test $48.89. With this second support broken, movement to the downside could continue to $48.32.

Meanwhile, April Brent’s central pivot point is projected at $60.89. The contract will see its first resistance level at $61.94. If breached, it may rise and test $62.86. In case the second key resistance is broken, the European crude benchmark may attempt to advance $63.91.

If Brent manages to penetrate the S1 level at $59.97, it could continue down to test $58.92. With the second support broken, downside movement may extend to $58.00 per barrel.