U.S. West Texas Intermediate and international-benchmark Brent crude oil futures retreated for a fourth straight session on Wednesday, building on selling momentum that began late last week. The catalyst behind the selling pressure was a government report that showed U.S. crude and fuel stockpiles rose last week, while American producers continued to increase output.
March WTI futures settled at $61.79, down $1.60 or -2.50 percent. April Brent futures closed at $65.51, down $1.35 or -2.00 percent.
The WTI futures contract hit one-month closing and intraday lows. The Brent contract fell below $66 a barrel for the first time since December 26.
According to the U.S. Energy Information Administration, U.S. commercial crude inventories rose by 1.9 million barrels to 420.3 million in the week through February 2. Traders were looking for a 3 million barrel build. The increase was being blamed on a buildup of stockpiles in the Gulf Coast refining hub, where refiners are winding down operations for seasonal maintenance.
Stockpiles of gasoline and distillate fuels such as diesel also rose by 3.4 million barrels and 3.9 million barrels respectively, the EIA reported, well-above trader expectations.
A rise in the U.S. Dollar put further pressure on oil prices.
In other news, earlier in the week, the EIA forecast U.S. production will average 10.6 million barrels a day this year, enough to continue surpassing output from Saudi Arabia, until recently the world’s second-biggest producer. In 2019 EIA sees American output at 11.2 million barrels, enough to rival top producer Russia.
Forecast
The correlation between the dollar and oil has reasserted itself. A stronger Greenback tends to reduce foreign demand for crude oil. This puts pressure on prices. Therefore, besides the traditional supply/demand data, investors have to pay close attention to the dollar’s movement.
Traders should also keep an eye on the shutdown of Britain’s most important oil and gas pipeline. The Forties pipeline was shut down for the second time in two months, this time by automated safety systems due to an undisclosed issue.
There has been little response so far by traders to the shutdown because the company, Ineos, said it aims to restart the pipeline overnight. A delay could cause a short-covering rally.
Technical factors could also play a role in the price action today. April Brent crude oil futures are currently testing a major technical retracement area, defined as $66.03 to $64.91. Prices could plunge further if $64.91 fails as support.
March WTI futures are currently trying to establish support at $61.37, the market’s 50% level. We could see a technical bounce on the test of this level, but if it fails prices could plunge to $60.12.
Today, watch the dollar and trader reaction to the potential support areas.