Crude bounces back ahead of US oil inventories

The price of oil has bounced back a touch after Tuesday’s sell-off when Brent and WTI shed around 2% each.

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. 

Build your confidence risk free
Join our live webinars for the latest analysis and trading ideas. Register now

StoneX Financial Ltd (trading as “City Index”) is an execution-only service provider. This material, whether or not it states any opinions, is for general information purposes only and it does not take into account your personal circumstances or objectives. This material has been prepared using the thoughts and opinions of the author and these may change. However, City Index does not plan to provide further updates to any material once published and it is not under any obligation to keep this material up to date. This material is short term in nature and may only relate to facts and circumstances existing at a specific time or day. Nothing in this material is (or should be considered to be) financial, investment, legal, tax or other advice and no reliance should be placed on it.

No opinion given in this material constitutes a recommendation by City Index or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although City Index is not specifically prevented from dealing before providing this material, City Index does not seek to take advantage of the material prior to its dissemination. This material is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.

For further details see our full non-independent research disclaimer and quarterly summary.