Crude oil climbs to multi-week highs amid on-going crisis in Ukraine, inventories eyed

The price of crude oil continues to rise in response to the escalation of the crisis in Ukraine, with Brent climbing to a 6-week high of $110 per barrel today. The “anti-terrorist” operation started yesterday and Ukrainian troops have retaken the eastern city of Kramatorsk’s airfield from pro-Russian rebels. Russian President Vladimir Putin has described the country as being on the "brink of civil war." Oil investors are shrugging off signs of weaker demand in China. GDP growth in the world’s second largest economy slowed to its lowest level in six quarters. It moderated to 7.4% in Q1 from 7.7% in the final three months of 2013, though it still topped expectations of 7.3%. China’s other macro pointers were mixed. Industrial production climbed to 8.8% y-o-y from 8.6% previously, but still missed expectations of 9.1%. Retail sales grew 12.2% and were better than expected while fixed asset investment was weaker.

Last night, the API published its latest US crude oil inventories data which showed overall stockpiles once again increased sharply – by 7.6 million barrels this time. However stocks at Cushing, the delivery point for WTI, decreased by 640 thousand barrels while distillate and the already-depleted gasoline inventories fell, too. These helped to boost the price of WTI oil, which hit its highest level since early March. The official stockpiles data from the US Department of Energy comes out at 15:30 BST (10:30 EDT) and will be interesting to see if it confirms the API’s numbers. Meanwhile it has become somewhat clear that the soft patch in US data has been largely weather related. We have already seen a solid retail sales figure for the month of March on Monday. Today’s release of housing starts and building permits were both in line with expectations, suggesting future construction activity will likely grow at a steady pace. As more data comes out stronger, the market’s view on future demand for oil will likely change and this may become apparent by a rallying price of WTI. However the rising levels of oil production in the US means the potential gains will mostly likely be limited.

On the technical front, the WTI contract has taken out a bearish trend line that had provided resistance over the past few days. Thus it is reasonable to expect there to be further gains in the near-term as more sellers abandon their positions. The March high of $105.20 is the next important resistance level to watch.