EIA

Until today, the price of oil had been little-changed during the week. Market participants were waiting for direction from the weekly US oil inventories report, which was published earlier today.

Oil prices have bounced back after Wednesday’s decline and are thus back higher on the week after Monday’s rally. As before, I think oil prices are heading higher. The lack of a clear trend over the past several weeks has coincided with rising US crude oil inventories to new record levels. But after a six-week streak of rises, US oil stocks are likely to have fallen last week.

Crude oil prices have been on a roller-coaster ride to absolutely nowhere in recent weeks. It appears as though the buying and selling pressure in finely balanced. Bullish speculators are encouraged to remain in the game because of the OPEC’s efforts to reduce supply. Bearish traders are encouraged by signs of renewed rise in oil production in the US.

Crude oil prices have recently been lifted to year-to-date highs on a successful agreement to cut oil production and control supply among major OPEC and non-OPEC oil producers. Although it is still unclear as to how closely all parties to the deal will adhere to the specifics of this agreement, market optimism has pushed crude oil prices to a new, higher plateau. In the case of the Brent Crude global benchmark, this new plateau is in the range between $53.00 support and last week’s new 17-month high around $57.50.

Crude oil struggled to hold onto its initial gains made on the back of the official US oil inventories report. Both contracts initially bounced nicely after the EIA data showed a surprise drawdown of 2.6 million barrels in US oil stocks, rather than a large build as had been reported by API last night. However, it wasn’t all good news as the EIA also reported a 1.1% week-over-week rise in US oil production, while crude stocks at Cushing rose by 1.22 million barrels.

The bad news for crude oil began recently after doubts started emerging with regard to a proposed OPEC deal to cut oil production. Partly as a result of these doubts, crude oil prices for the past two weeks have virtually been in a state of free fall. Earlier this week, it was reported that OPEC’s oil output may have reached yet another record high in October, casting further doubts on the potential success of any deal to cut production.

The West Texas Intermediate (WTI) benchmark for US crude oil prices surged on Wednesday after the Energy Information Administration (EIA) reported that US commercial crude inventories fell by 553,000 barrels last week. The markets had been expecting a substantial build in stockpiles, particularly after Tuesday’s report from the American Petroleum Institute (API), which had reported a much higher-than-expected build last week of 4.8 million barrels. The EIA’s report of a surprise draw last week follows a much larger draw of 5.2 million barrels in the previous week. As a result of Wednesday’s report, WTI initially surged, recovering the losses it had suffered immediately prior to the data release.

Oil prices have been extremely volatile of late, without making any significant progress in either direction. The long and short of it is that the stream of mostly negative news has helped to halt the recent rally, while ahead of this month’s informal meeting of the OPEC in Algeria not many people will want to be betting boldly on an oil price plunge. Therefore consolidation is the dominant theme in the oil market at the moment, with a slight bearish bias due to the ongoing oversupply concerns.

Since Friday, the West Texas Intermediate (WTI) US benchmark for crude oil has been rebounding from a critical price juncture around the $43 level. This rise has been driven primarily by tentative hopes for an agreement among Russia, Saudi Arabia, and potentially other OPEC members to limit oil production in the interest of steadying crude prices. Also helping to boost crude oil in the past few days has been a weaker US dollar, which has been pressured by diminished expectations of a September Fed rate hike due to a string of relatively weak US economic data since late last week.

Oil prices swung wildly into the positive territory yesterday. The rally eventually came to a halt around the $50 handle for Brent and $48 for WTI, and both contracts have been trending lower from these levels until an hour or so ago. It looks like oil prices have now found some short-covering support ahead of today’s official US crude oil inventories report, due at 15:30 BST (10:30 ET).

The official weekly crude oil inventories report from the US Energy Information Administration (EIA), released this afternoon, has confounded expectations in a positive way and oil prices have correspondingly surged to their best levels since early July. Meanwhile it is a game of wait-and-see as far the dollar is concerned and by extension buck-denominated gold, with traders largely sitting on their hands ahead of the release of the FOMC minutes later on today.

The Canadian dollar has endured a volatile day because of the slump in oil prices on the back of the latest US oil inventories report and a more hawkish Bank of Canada policy statement than expected. As we go to press, however, the Loonie is higher across the board, even though oil prices are significantly weaker on the day. For some CAD crosses, the volatility will remain high for the remainder of this week, due to the sheer amount of fundamental data or events scheduled over the coming days. Tonight, for example, will see the release of important Australian jobs data, while tomorrow is the Bank of England’s turn to deliver its rate decision and assessment on the UK economy following the Brexit vote. Thus the AUD/CAD and GBP/CAD could be among the key pairs to watch over the next 24 hours or so for trading opportunities.