Summary:

• DOE crude oil inventories: -1.1M vs API: +4.8M
• US production rises once more: +15.2% Y/Y
• Oil moves back above $78 but signs uptrend may be exhausted 

The latest crude inventory data from the US has shown a second consecutive drop and boosted the price of Oil to its highest levels of the day. The DOE number showed a decline of 1.4M barrels in the past week, which is marginally below the -1.1M expected with the prior reading -2.2M. The reaction seen in the market with Oil moving higher by around 60 cents is likely due to today’s number relative to last night’s API, which showed a large an unexpected rise of 4.8M. Compared to this, today’s data could be seen as fairly supportive of price. 

 

 Oil jumped higher after the release and moved to its highest level of the day back above 78.00. Source: xStation

However, a look at the latest US production figures is not so positive for the price of Oil and this is fast becoming the Elephant in the room as far as crude is concerned. Daily production increased to 10.723M barrels, from 10.703 previously and this marks an increase of 15.2% Y/Y.  

 US oil production continues to increase and this may well pose a problem for further upside going forward. Source: Bloomberg

Taking a longer-term view and looking at a D1 chart, there are some signs that the current move higher may be reaching exhaustion. Since making a low below the $62 handle back in February, the market has been on a strong rip higher gaining almost 30% in a little over 3 months. The latest leg to the upside came last week when Trump announced the US would be reimposing sanctions on Iran and a large bullish candle formed on D1. Whilst there has been further upside since this news it has been fairly measured and the speed of the gains have been far slower than pace of the large drop last Tuesday when CNN erroneously claimed the US would not reimpose sanctions on Iran.

What does this tell us? Whilst it would be bold to draw firm conclusions from the recent price action, it could possibly have been expected to be a little firmer to the upside and therefore maybe a pullback is due. Tuesday’s session saw an inverted hammer print on D1 and as long as the high of 79.45 isn’t taken out then this gives a clear reference point for possible resistance and allows for a move back lower going forward. 

 Oil printed an inverted hammer yesterday and if the high of 79.45 remains in tact then a pullback going forward is possible. Source: xStation

A technical overview of Oil.WTI can be found here.