Continuation of oil's downtrend possible after today's inventory data

Fundamental View

Yesterday was a quiet session ahead of Janet Yellen’s Senate testimony with the only event of note in the European morning being the expected confirmation that the funding extension for Greece has been agreed after the Greek Government submitted their list of reforms and this was accepted by the Euro group. So sentiment was mildly positive going into the Yellen event. Yellen’s testimony was also a quitter affair than it perhaps was expected. The Fed Chair was typically contradictory with an upbeat assessment of the US economy and the labour market recovery but then concerned still about the lack of wage growth. Yellen tried to use this speech to slightly alter the market’s interpretation of the word ‘patient’. Yellen confirmed that whilst ‘patience’ remains in their post meeting statements then this means that they FOMC will not raise rates in the next couple of meetings. However, she did seem to pave the way for the dropping of this word sooner rather than later but she looked to reassure people by saying that this does not mean they will definitely start raising rates in two meeting time but will move to a stance whereby they will look to raise rates at any meeting dependent on economic conditions/data.Overall, markets took this very slightly dovishly with the S&P pushing to another new all time high, the US dollar weakening and T-Notes pushing higher.

Today’s View

This morning conditions have been muted with the S&P, EURUSD and T-Notes all trading around the prices reached after the Yellen speech. Crude oil has taken a slight bid and WTI is trading around the pivot at 49.50. We have the Crude oil inventory data this afternoon and although the API crude numbers announced last night posted lower numbers than last week, traders should not overlook that a build of 8.9m bbl is still significant. Today's DOE inventories are likely to beat expectations although there is a chance participants are expecting a larger build than will be realised. A pullback higher in oil followed by a stabilisation or continuation of the down trend is therefore a probable. We also have US New Home Sales data due at 15.00 GMT. Overall we have a slight negative bias for the session with short positions for S&P, EURUSD and crude and a long strategy for T-Notes.

Alternative view

If crude inventories post a surprising draw down or much smaller build than expected then crude oil will drive higher for the rest of the session.