Oil Bulls Shrug Off Poor Data Ahead of Payrolls

Oil Refining’s Fortunes Rise
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Benchmark oil prices are likely to extend gains this week, shrugging off data showing manufacturing activity in the world's two leading economies slowed in March, according to CNBC's latest oil market poll, but an underwhelming set of U.S. jobs numbers this Friday may undermine confidence.

Although key gauges in China and the U.S. both showed an expansion in factory output in March, with the reading above the 50, which separates expansion from contraction, activity slowed from the previous month or failed to meet market forecasts.

China's official manufacturing PMI released by the National Bureau of Statistics on Monday rose to an 11-month high of 50.9 in March, above the 50-point level that indicates growth on the month, but below a Reuters poll consensus forecast of 52.

Economic data in the U.S. that misses expectations may simply mean that the Federal Reserve will keep an accommodative stance on monetary policy for longer, which would be positive for equities and riskier assets such as oil, according to some market professionals. The Fed has stood by its policies to keep borrowing costs at record lows, saying the U.S. economy still needs the support to help cut stubbornly high unemployment

(Read More: Decoding Chinese PMI — Watch These Key Thresholds)

"Oil markets have held up well over the last week," said Tom Weber, senior commodity advisor at Portfolio Managers, Inc. Commodity Futures & Options in Los Angeles. The Fed's commitment to pump equities could drag oil higher. Look for move to $98 to $99 area to test resistance. If it fails, [and I think it will], oil should move back down to $88 area," Weber said, referring to U.S. crude futures.

Seven out of 12 respondents, or almost 60 percent, expect prices to gain this week while five called for lower prices, suggesting a degree of caution amongst market participants.

"Oil prices are developing relative strength and are gaining despite a stronger U.S. dollar and weaker equity markets," wrote Eugen Weinberg, head of commodity research at Commerzbank in a report on March 28. "It remains to be seen whether the oil prices will be able to defy the headwind for any length of time if the U.S. dollar continues to appreciate and the weakness on the equity markets persists."

(Read More: How the US Oil, Gas Boom Could Shake Up Global Order)

Andrew Su, CEO of Compass Global Markets in Sydney remained bearish on oil in the short and medium term. "For now, we no longer have any open positions in WTI [West Texas Intermediate, the crude oil grade for the U.S. crude futures contract] and will only enter the market for intraday shorting opportunities," Su wrote in a report on Tuesday.

Compass Global is "unlikely to take any further core positions in crude" unless there is a break outside of the $94 to $98 range. "However, we did manage to get one thing right in the last week and that is the Brent-WTI spread has stopped contracting and we now see the spread trading at just above $14. We expect this spread to widen further to above $20."

(See latest quotes on Brent and WTI)

Follow Sri Jegarajah on Twitter: @CNBCSri