Oil gains despite 8th consecutive inventory rise; recovery remains fragile

Summary:

• Weekly oil inventories rise for the 8th time in a row

• Huge build of 10.3M vs 2.9M exp. 5.8M prior

• Oil price remains near highs of the day but still in downtrend

The latest inventory data from the US has shown yet another increase, with this release rising for a remarkable 8 weeks in a row. Not only did the report extend this sequence of rises, the scale of the latest increase is also noteworthy with a gain of 10.3M. This is well above the +2.9M expected and also the prior of 5.8M and is in fact the highest rise of the whole recent sequence - you have to go back over 18 months to February 2017 to find a higher reading. Some of the shock in the release may have been taken away by last night’s API number which showed +8.8M but it is still a large build whichever way you view it. Looking at the components of the report the following are shown in the form of actual vs expected unless otherwise stated:

• Gasoline: -1.4M vs -1.9M

• Distillates: -3.6M vs -3.5M

• US oil production 11.7M vs 11.6M prior    

Overall there’s not much good news here for Oil bulls, but despite this there has been a push higher since the release. This could possibly be explained by the market having been so oversold lately that this news is being discounted and the fact that it has failed to sell initially could offer a ray of light to longs. However, before they can get to optimistic for a sustained recovery they will want to see the price get back above the H1 Ichimoku cloud, as this has neatly contained rallies for much of the sell-off.  

Oil has moved up to its highest level of the day despite the large inventory build. The market is still in the cloud however and needs to break out above it (currently 68.27) before a sustained rally can occur. Source: xStation  

The low made in Oil.WTI earlier this week is perhaps more significant than that seen in Brent (Oil on xStation) as it coincides with a previous swing level around the $55 handle. The market has bounced around 250 ticks off these lows but this is still small compared to the scale of the declines with a fib from the highs around 77 showing the 23.6% still doesn’t come in until 59.99. There is a chance that this bounce gains traction but given the size of the sell-off a retest of the lows around 54.77 is more likely and how the market reacts should this occur will determine whether the fall is over or if there is more downside ahead.

Oil.WTI still remains under pressure even after today’s gains with the 23.6% fib of the larger declines some way overhead at 59.99. Recent lows around 54.76 coincide with previous swing levels and could now be seen as important support. Source: xStation