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.
Despite the weekly rise in US oil production, I think it is far too early for the markets to worry about that. The immediate worry is whether the OPEC and those non-OPEC countries who agreed to cut their oil production will actually stick to the plan. So far, there is no reason to suspect why they might not, given the willingness most participants showed as they finally came to an agreement at the end of last month. It will be very costly for them to be short-sighted and cheat. Consequently, I don’t think the OPEC-fuelled rally has ended yet. In fact, I think this could just be the start as we have only just moved out the recent consolidation range.
Indeed, the pause at the start of this week has been hardly surprising given the massive price gaps both Brent and WTI had left behind. Now those gaps are mostly ‘filled’ and prices have returned to the top of their old ranges. Previously resistance, these levels could now turn into support. So, oil prices could easily bounce back from their current levels. For avoidance of doubt, I am talking about the area between $51.65 and $52.00 on WTI, give or take a few cents. The next potential support below this area is at $50.90 and then $49.00. Clearly the bulls would not want to see WTI go down to these levels now. AS before, my bullish objectives remain at $58 (Fibonacci convergence with old support), $60 (a psychologically-important level) and then $56.50 (roughly the high from 2015).
Source: eSignal and FOREX.com.