The price of oil has bounced back a touch after Tuesday’s sell-off when Brent and WTI shed around 2% each. Oil prices fell in response to bearish news from not only the OPEC but also the US. Reports from Reuters and Bloomberg suggested that OPEC oil output increased in July which basically suggests that compliance with the production agreement declined further. However given the renewed push by Saudi for better compliance from the OPEC, it remains to be seen if they will be more compliant in the coming months. Major non-OPEC producer Russia is at least doing its part. Meanwhile in the US, oil inventories ‘unexpectedly’ rose by 1.8 million barrels last week as crude imports surged, according to the American Petroleum Institute (API). There was a marked increase in Cushing crude supplies, though stocks of gasoline declined by a good 4.8 million barrels. So, the API report wasn’t too bearish but it was by no means bullish.
Oil market participants will now turn their attention to this afternoon’s release of official US crude inventories data from the Energy Information Administration (EIA). Given the API’s estimates form Tuesday, the headline EIA figure would do very well to match expectations of a 3.2 million barrel drawdown. We expect oil prices to bounce on any sort of a drawdown, given that a build is now the more likely outcome, thanks to the API’s estimates. If the EIA data shows a build then oil prices could turn lower and may even extend their declines from yesterday.
Both contracts failed to stay above their respective and technically-important 200-day moving averages on Tuesday. The drop below the moving average probably exacerbated the downward move on the day due to technical selling pressure, as some buyers’ sell stop loss orders were undoubtedly triggered. At the time of this writing however, both contracts are back to their breakdown levels, with WTI hovering around $49.20 and Brent $52.00. If prices rise back and hold above these levels then that would re-establish the bullish bias. But while below these levels, there is a risk of a deeper pullback in the short-term. Overall, though, oil prices are stuck inside wide ranges and are currently hovering around the middle of that corridor. So, there may be further juice left in this rally still, despite yesterday’s bearish-looking price action.
Therefore, and as before, crude oil remains day traders’ market: from one level to the next. The long-term trend is still not clear, even if recent price action has been more bullish than bearish.
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