Summary:
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Weekly crude oil inventories: -4.0M vs +1.1M exp. API: +2.8M
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US production falls to 12.2M: 12.3M prior
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Oil fails to rally despite the surprise draw, trades around $70 handle
An unexpected drawdown in the latest inventory data from the US has seen the price of Oil recover from some early weakness to trade back higher on the day. After a monster rise of 9.9M last time out, consensus forecasts were for a build of 1.1M with the print of -4.0M coming as something of a downside surprise. Last night’s API number came in at +2.8M. Looking at the components of the report there was more good news for crude bulls, with US production dropping and draws seen in both gasoline and distillates. Prints were as follows:
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Gasoline: -0.6M vs -1.0M exp
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Distillates: -0.2M vs -0.5M exp
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Cushing: +0.8M
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US production 12.2M vs 12.3M prior
The recent pullback in inventories means that the current level is still close to the 5-year average, which also suggest we could be entering a period of seasonally lower readings going forward. Source: xStation
Elsewhere in the news reports that Saudi production is expected to remain below OPEC+ targets is another positive. Saudi Arabia as the de facto leader of OPEC has been producing significantly below its target of late and while the kingdom has promised to ramp up output to offset any shortfall from Iran and the impact of sanctions, it appears that it is still reigning it in.
In terms of market reaction it has been positive as you’d expect, but it is perhaps telling that there’s not been a strong move higher in the Oil price. Longer term charts reveal that we are currently at a possible turning point and as is often the case when markets hint at reversals, there’s been some volatile trade of late. Monday saw price begin the week sharply lower after the escalation of US-China trade tensions but the market staged an impressive recovery to end firmly higher before Lighthizer’s comments sent price back lower. With the 8 and 21 EMAs converging there is some suggestion the trend could be turning lower but the market really needs to drop below the 23.6% fib at 68.95 before any further downside can occur. In terms of possible resistance the weekly highs around 71.80 are an area of possible interest and should the market break above these then it will have moved back above the EMAs and potentially negated a bearish cross.
Oil could be set to turn lower with the 8 and 21 EMAs on the verge of a bearish cross. 23.6% fib at 68.95 could be a key level to watch on the downside. Source: xStation
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