Oil rises close to 2018 peak after large DOE draw

Summary:

• DOE inventories: -5.3M vs -4.3M prior

• Reading between expected (-1.3M) and API (-8.6M)

• Oil jumps to $80 in the initial reaction; close to 2018 peak

The latest DOE inventory release has shown yet another large drawdown, marking the 4th consecutive weekly drop. The headline figure of -5.3M is similar to last week’s -4.3M print and shows that US stockpiles have dropped substantially in the past fortnight. The reading was in between the consensus forecast from analysts who expected a drop of 1.3M and last night’s API inventories which showed a mammoth drop of 8.6M.

As is typically the case around this release the initial reaction was volatile with an initial drop being met with some strong buying pressure which pushed price up above the $80 mark, although these gains have since been pared. Source: xStation

The choppy trade seen following the release is not too surprising when you look at the components of the report, which while probably still seen as positive for crude overall, does contain a few points that take the edge off of it. The following are shown in the format of actual vs expected unless otherwise stated:

• Gasoline: +1.3M vs +0.3M

• Distillates: +6.2M vs +1.8M

• Refinery utilisation: +1.0% vs -0.5%

• Production: 10.9M bpd vs 11.0M bpd prior

The bigger picture for Oil is becoming increasingly interesting after strong recent gains have seen the price return to its 2018 peak around 80.50. This afternoon the market has rallied to its highest level since May making a high of 80.11. This move higher has broken above the previous peaks from earlier this month and June and how the market reacts next could well set the scene going forward. A clean break above 80.50 would mark the end of a prolonged period of consolidation with the market in a $10 range from 70.50 for the last 5 months and from a technical perspective traders may target an equal size move higher. However, a rejection here would keep the range in play and see this ceiling respected once more.

Oil is looking to make a potentially significant break higher if it can breach and close the day above 80.51. The market previously respected resistance around 70.40 on several occasions before a break saw price embark on a strong rally and a move above 80.51 could target a symmetrical rally to 90.50. Source: xStation