Summary:

• oil prices hesitant after the DOE report 
• the DOE reported a build in inventory but it’s far smaller than the API indicated
• US output keeps expanding – a factor that may keep a lid on prices in a longer term

The DOE report was much awaited on the market as such report last week buoyed prices significantly as investors were shocked by inventory draw. This was not the case this time around. Although a small build (of just 0.14mb) was anticipated, the report showed a larger 1.64 mb increase of oil inventories. Nevertheless this has still been well received by the markets because the API report yesterday suggested a much larger build of 5.32mb! Therefore, even though the build is larger than originally expected, it’s much smaller than what the investors were already prepared for. Importantly a “weekly path of inventories” continues to run below the 5-years average suggesting a continuous market rebalancing. 

The US OIL inventories are below the 5-year average. Source: Bloomberg, XTB Research 

While there were expectations for lower inventories of gasoline and distillates, the report showed these declining by a combined 5.5mb, well north of the consensus at 4.1mb. This adds to the bullishness of the report. 

Having said that, the US output continues its expansion and it’s already at 10.433 mbd, up 26kbd from last week. That implies an annualized expansion of above 1mbd – nothing new for the markets but a reminder that increased supply could put brakes on price rally. 

OIL.WTI is trapped between short-term downward pressures and long term 5th wave target. Source: xStation5 

As a result we’ve seen only a small price recovery. OIL.WTI prices have been sliding for three days in a row now, suggesting that a simple correction could be over an an impulse wave below $60 could be on the cards. Then again, taking a longer look at the market, the 5th wave still looks like an unfinished business so it will be important to see if bulls can use a local high from 26 February as a support.