Summary:

  • Oil stockpiles continue sliding but it could reverse in the nearest future
  • Stronger USD could lower demand for oil
  • WTI prices (OIL.WTI on xStation5) at a key supply zone, a pullback could lurk around the corner

Oil prices have kept their upward momentum recently being underpinned by a continued decline in inventories. Let us recall that the latest DoE report showed another impressive slump (7.4 million barrels) last week. Nonetheless the commodity did not benefit from the report too much as the overall backdrop was undermined by some details. Namely distillates stocks increased as much as 8.9 million barrels while gasoline stockpiles jumped 4.8 million barrels – both could be a sign that US refiners might cut back on crude demand.

link do file download linkOil stocks shrank a seventh week in a row. Source: tradingeconomics.com

Although oil stocks have fallen quite substantially of late this pattern could reverse which is suggested by the seasonality analysis. However, analysts surveyed by Bloomberg forecast that crude stockpiles have dropped by 4.1 million barrels last week which could be another bullish signal for crude buyers. Before the DoE releases its report on Wednesday there will be the API’s publication later today (9:40 pm BST). Either way, keep in mind that due to the seasonal pattern we could get more and more disappointments in this field. Furthermore, one needs to remember that the weaker US dollar has certainly contributed to the better performance of crude prices therefore a possible retreat there might create a reversal on the commodity. Let’s take a closer look at some charts of oil which keeps moving within a supply zone.

Weekly (W1)

The latest increases have taken the price of crude to a long-term supply zone which seems to rise odds of a greater pullback. The mentioned zone spans an area between $61 and $63 and it’s additionally supported by the red line. An ultimate target for bulls appears to be placed nearby $63.5, however one needs to be cognizant of a larger correction which might occur yet before testing this level.

link do file download linkThe overbought oil market is entering a long-term supply zone. Will it spur a more notable corrective move?

Daily (D1)

Any bearish signals which would confirm that bears regain control on the market have yet to be seen at a daily time frame. Still, more important supports might be determined by a breadth of the latest corrections: $3.1, $3.7 and $4.7 respectively. On top of that it’s worth keeping an eye on the levels we marked at the chart below which stem from the price action analysis.

link do file download linkMarket participants await any bearish signals at a daily interval. Source: xStation5

Hourly (H1)

A H1 time frame illustrates that buyers have had enough resolve recently to keep the price rising. Do notice that the price has just realized a corrective move based on the overbalance strategy ($0.95). Looking further, bulls could look for another support in form of a width of the larger pullback ($2.45). Nonetheless, once the price slides by more than $2 it could bring about a more severe slump as it would coincide with leaving a supply zone seen at higher time frames.

link do file download linkThe overbalance strategy seen at a H1 interval. Source: xStation5