Crude oil trading outlook: WTI hits 6-year low on US supplies, Brent drops

West Texas Intermediate revisited Januarys 6-year trough on Monday as the dollar hovered near a 12-year peak against a basket of currencies, while US crude output remained at the highest in more than three decades despite a further drop in the count of rigs targeting oil. Brent fell as well.

WTI crude for delivery in April, which expires on March 20th, traded 1.12% lower at $44.34 per barrel at 8:26 GMT, having earlier dropped to $43.57, the lowest since March 2009. The contract fell 4.7% on Friday to settle the week 9.6% lower at $44.84, a fourth straight weekly drop.

Meanwhile on the ICE, Brent for settlement in May was down 1.29% at $54.30 a barrel, ranging between $54.90 and $53.64 a barrel. The contract slid 3.96% on Friday and settled the week 8.6% lower at $55.01. The April contract expires today.

Oil prices fell sharply on Friday as the US dollar raced ahead, weighing down on dollar-denominated commodities, while the International Energy Agency warned that the global supply glut will continue to grow and that record US supply may deplete the countrys storage capacity.

The US dollar index for settlement in June traded at 100.385 at 8:30 GMT, down 0.33% on the day, having shifted in a daily range between 100.715 and 100.200, close to Fridays 12-year high of 100.785. A stronger greenback makes dollar-denominated commodities pricier for holders of other currencies and curbs their appeal as an alternative investment.

Further strength of the dollar may be seen if Federal Reserve officials drop the “patient” stance at their two-day policy meeting which starts tomorrow. Although Fed Chairwoman Janet Yellen had said an interest rate increase is unlikely in the next couple of meetings, speculations of a hike as early as June were rekindled following Februarys better-than-expected employment data.

Growing glut

“Bearish comments from the International Energy Agency that the U.S. might soon run out of empty tanks to store crude and a suggestion that global supply was up 1.3 million barrels per day in February year on year at 94 million barrels weighed on sentiment,” ANZ said, cited by CNBC.

Data by the Energy Information Administration showed last Wednesday that US crude supplies jumped by 4.512 million barrels in the seven days through March 6th to 448.9 million, the most in at least 80 years, while production inched up to 9.366 million, the highest on weekly statistics stretching back to January 1983.

Failing to lift bullish sentiment, Baker Hughes Inc. said on Friday that US oil explorers idled 56 rigs last week, cutting their number for a 14th straight week to 866, the lowest since March 25th, 2011. Producers have brought offline 709 rigs since early-December as a slump in oil prices that began in June forced spending cuts and layoffs by the thousands.

Ric Spooner, a chief strategist at CMC Markets in Sydney, said for Bloomberg: “We’ve got this ongoing increase in inventory with no cut in production, despite the drop in the number of shale-oil rigs. We’re seeing downside momentum now develop in the market.”

According to Goldman Sachs, the dropping US rig count would only translate into slightly lower production in the second quarter of 2015. A proposal last week by the US government to purchase up to five million barrels of oil for its Strategic Petroleum Reserve also failed to lift the market.

Meanwhile, investors assessed the possibility of a partial nuclear deal with Iran by the end of the month and a final accord in June after the US and European powers showed willingness to compromise on suspending UN sanctions. An agreement would lift sanctions on the Islamic Republic, allowing it to boost crude exports which have been limited to near 1 million barrels per day.

Pivot points

According to Binary Tribune’s daily analysis, West Texas Intermediate April futures’ central pivot point is at $45.62. In case the contract breaches the first resistance level at $46.50, it may rise to $48.15. Should the second key resistance be broken, the US benchmark may attempt to advance $49.03.

If the contract manages to breach the first key support at $43.97, it might come to test $43.09. With this second support broken, movement to the downside could continue to $41.44.

Meanwhile, May Brent’s central pivot point is projected at $55.79. The contract will see its first resistance level at $56.82. If breached, it may rise and test $58.64. In case the second key resistance is broken, the European crude benchmark may attempt to advance $59.67.

If Brent manages to penetrate the S1 level at $53.97, it could continue down to test $52.94. With the second support broken, downside movement may extend to $51.12 per barrel.