Crude oil trading outlook: futures rise ahead of expiration

West Texas Intermediate and Brent crude rose on short covering ahead of the April contracts expiry next week, but a strong dollar and continuously rising US crude inventories capped upside momentum.

US crude for delivery in April traded 0.89% higher at $48.60 per barrel at 8:22 GMT, shifting in a daily range of $48.65-$48.03. The contract fell to a 1-1/2-month low of $47.33 on Wednesday before paring its decline to settle the day 0.25% lower at $48.17.

Meanwhile on the ICE, April Brent was up 1.01% at $58.12 a barrel, having ranged between $58.25 and $57.65 during the day. The contract jumped 2.04% yesterday to $57.54 a barrel after it earlier fell to $55.92, the lowest since February 11th. Brent traded at a premium of $9.52 to its US counterpart, up from Wednesdays settlement at $9.37.

Oil prices were on the rise for a second day as investors covered short positions ahead of the expiry of both benchmarks front-month contracts. Brents April contract expires on March 16th, while April WTI is due on March 20th.

“When contracts expire there is more uncertainty and volatility associated with oil” said for CNBC Victor Shum, vice president of IHS Energy in Singapore. “For investors speculating, directionally WTI seems to be facing more pressure heading down. Brent will move upwards.”

The two contracts divergence widened back to over $9 after falling to $8.10 through Tuesdays close as data by the Energy Information Administration showed a ninth consecutive weekly build in US crude inventories last week. The US crude benchmark drew support on Tuesday as private statistics by the American Petroleum Institute showed an unexpected decline in stockpiles, which, however, was rebutted by the official report.

US crude supplies jumped by 4.512 million barrels in the seven days through March 6th to 448.9 million, the EIA said yesterday, which was the highest in at least 80 years. Supplies at the Cushing, Oklahoma storage hub rose to 51.5 million barrels from 49.2 million a week earlier. US crude oil production increased by 42 000 barrels per day to 9.366 million, the highest on weekly statistics stretching back to January 1983.

Any extended moves up will also be limited by a stronger dollar as a gauge measuring its performance against a basket of six major trading peers rose to levels unseen since almost 12 years. The euro slumped to the lowest in 12 years against the greenback on Thursday, with more downside seen by analysts amid continuous signs of economic weakness in Europe and the implementation of monetary stimulus, while upbeat data from the US backed the case of a sooner interest rate hike in the US.

The US dollar index for settlement in March traded 0.65% lower at 99.135 at 8:22 GMT, having hit 100.065 earlier in the day, the highest since April 2003. The contract surged 1.2% yesterday to 99.785. A stronger greenback makes dollar-denominated commodities more expensive for holders of foreign currencies and curbs their appeal as an alternative investments.

Weak data points from China throughout the week also proved pressuring. Industrial output expanded at a slower-than-expected annual pace of 6.8% in February, compared to 7.9% in January, while Fixed Asset Investment grew by 13.9%, trailing projections for 15.0%. On Tuesday, consumer inflation came in well above expectations but a further slump in producer prices, which are deemed a precursor to consumer inflation, underscored the Chinese economy’s continued weakness.

Data on Thursday showed Germanys economy remained in the deflation zone for a second straight month, and so did France. Market players now eyed todays industrial production figures from the Eurozone for further trading queues, while later in the day are due initial jobless claims from the US and Februarys retail sales.

Pivot points

According to Binary Tribune’s daily analysis, West Texas Intermediate April futures’ central pivot point is at $48.18. In case the contract breaches the first resistance level at $49.04, it may rise to $49.90. Should the second key resistance be broken, the US benchmark may attempt to advance $50.76.

If the contract manages to breach the first key support at $47.32, it might come to test $46.46. With this second support broken, movement to the downside could continue to $45.60.

Meanwhile, April Brent’s central pivot point is projected at $57.14. The contract will see its first resistance level at $58.35. If breached, it may rise and test $59.17. In case the second key resistance is broken, the European crude benchmark may attempt to advance $60.38.

If Brent manages to penetrate the S1 level at $56.32, it could continue down to test $55.11. With the second support broken, downside movement may extend to $54.29 per barrel.