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. The EIA oil report showed that total US crude stockpiles fell by 4.73 million barrels, while stocks of key oil products also dropped sharply with gasoline inventories declining by 4.45 million and distillates by 2.14 million barrels. As the numbers were better-than-expected, oil prices turned higher with WTI climbing above the $47 mark. Over the past 15 weeks, US oil inventories have fallen a good 13 times, and in most cases, the falls were more pronounced than expected. Yet, US crude oil inventories still remain near the upper half of the average for this time of the year, according to the EIA. Stocks of gasoline and distillates are likewise in the upper half of the average range for the time of year. Thus, the supply surplus is still there, but the recent trend of destocking is nonetheless encouraging news.
Generally speaking, though, oil prices are still stuck inside wide ranges. The market is doubtful that OPEC members will stick to their plan of restricting supply. Indeed, one member, Ecuador, has announced that it no longer wants to comply with the production cuts. The South American OPEC member is not a major oil producer anyway, but if other larger members follow their footsteps then the whole deal could collapse. However if they stick to the plan then global oil inventories should fall and prices recover.
At the moment, however, WTI is trading near the middle of its wide range between around $40 to $55 per barrel, where it has been stuck in since early last year. In these range-bound conditions, it is difficult to predict with a high degree of confidence where oil prices will be heading using technical analysis alone. Nevertheless, within the consolidation, price action in the near-term appears to be slightly more bullish than bearish. Indeed, WTI’s ability to reclaim its broken swing points at $42.20/5 and $43.80ish is not exactly bearish. The US oil contract now needs to clear the next band of resistance around the $47 handle in order to encourage fresh buying interest. However if it creates a bearish-looking price candle around these levels then the sellers will be encouraged to step back in. Oil is therefore still day traders’ market.
Source: eSignal and FOREX.com