Crude oil attempts to break higher after small inventory build

Summary:

• Smaller than expected build in crude oil inventories (+0.9M vs +3.0M exp)

• Gasoline and distillate components show sizable drawdowns

• Oil.WTI moves up to 2-month high; Potentially key breakout above 54.50

The weekly crude oil inventories have shown a smaller than expected rise in US stockpiles and sparked a push higher in the price of crude. The headline build of 0.9M was the second consecutive build, but could be seen as supportive for price given the consensus forecast called for a rise of 3.0M. Last night’s API reading came in at +2.0M and last week’s EIA reading was +8.0M so against these readings, the print is actually relatively low.

Oil inventories rose by 0.9M in the past week, pulling back quite sharply after the prior reading of +8.0M. Source: Bloomberg

In addition to the headline number, the following components of the report were also announced:

Gasoline: -2.2M vs +2.8M exp and +4.0M prior

Distillates: -1.1M vs -1.1M exp and -0.6M prior

Refinery utilisation: -2.8% vs -0.85% exp

On balance these figures are slightly positive for the Oil price, with the Gasoline print especially pleasing for bulls. The immediate reaction has clearly been positive in the markets,with Oil.WTI rallying by almost 100 ticks in the past hour or so since the release.

Oil.WTI was trading below $54.00 when the inventory figure was released and has since rallied by around 90 ticks to trade close to the $55 handle. Source: xStation

If the outlook in the short term has been positive, the rally seen since the release could have greater ramifications for long term traders with the market moving above a potentially key long term resistance level. The region around 54.50 marked the high seen at the start of last week and in moving above there the market could be seen to have broken the neckline in an inverse head and shoulders setup. This formation takes it’s head from the December low of 42.60 and as such has a symmetrical target of 66.40 should it play out in a textbook fashion. Traders looking to take a position off this may choose to utilise the last candle rule when placing a stop loss, which would mean the stop is placed below the daily low of 53.10. This is a relatively wide stop but with an upside target of more than 1100 ticks it still represents and attractive risk to reward ratio.

In breaking above 54.50 the market may be seen to have triggered an entry for an inverse head and shoulders. A daily close above 54.50 would further confirm this while some traders entering long may look to utilise the last candle rule in placing a stop loss below the daily low of 53.10. A symmetrical target for this setup would come in at 66.40. Source: Xstation