U.S. crude oil futures may test $100 a barrel this week and possibly breach key support as Saudi exports replenish U.S. stockpiles and supply risks ease, technical analysts and strategists said Wednesday.
Sandy Jadeja, Chief Technical Analyst at City Index, said the charts suggest U.S. futures may drop to $98 a barrel, and if that level is broken, momentum could accelerate taking the crude to as low as $87.
Oil prices contained below $100 would help alleviate the strain on the U.S. consumer, offering some relief to the broader economy. A gallon of gasoline cost $3.94 at the pump last week, two cents higher than the previous week and 5.9 percent more expensive than a year earlier, MasterCard said in its weekly Spending Pulse report on Tuesday.
The catalyst for the move lower in oil prices may come later Wednesday when the U.S. Department of Energy's Energy Information Administration releases weekly stockpiles data at 10:30 am ET.
The report is expected to show a 1.8 million barrels build in commercial crude oil inventories for the week ending April 6, driven by higher U.S. imports of Saudi crude, according to analysts polled by Platts.
Crude inventories climbed 9 million barrels in the week that ended March 30 on a surge in imports and a moderate increase in refinery run rates. At nearly 362.4 million barrels, crude stocks for that reporting week were about 17,000 barrels greater than the five-year average and about 4.7 million barrels more than the same period in 2011, Platts said.
Markets are showing "signs that supply and demand are in balance," said Michael Langford, Proprietary Trader at StreamTrading.com. "U.S. crude oil stocks, for example, have witnessed their biggest two-week increase in 11 years in absolute terms, pushing inventories to a nine-month high.
But Europe is holding its lowest crude oil stocks in 15 years, Langford added, "so it will take months of supply exceeding demand to rebalance the market."
Meanwhile, OPEC member Iran appears to be moving towards a compromise on its nuclear program, helping ease fears of supply disruptions and military action against the oil exporter.
Brent and U.S. crude futures , which have risen to multi-year highs, are "overbought on political issues," Jeffrey Christian, Founder and Managing Partner of CPM Group told CNBC Wednesday. "Our expectation is for oil to go below $100 soon."