WTI lower as crude stocks surpass 400m barrels for first time

US crude oil has been unable to build on its gains from yesterday and at around $45 a barrel it remains near the lower end of its recent consolidative range, therefore in danger of breaking further lower. WTI has come under renewed selling pressure on concerns that the supply glut is here to stay for at least another good few months. Last night, the American Petroleum Institute (API) reported that US crude stocks increased by a good 12.7 million barrels last week, which was significantly more than expected. It therefore raised expectations that the official oil report would also show a significant increase in oil inventories, causing prices to retreat overnight. Indeed, the Energy Information Administration’s (EIA) weekly report, released this afternoon, showed that inventories rose by 8.9 million barrels. As this was somewhat lower than the number reported by the API, WTI actually staged a mini rally on relief the glut was not worse.

Evidently, the lower oil prices have so far had no actual impact on US oil supply. If anything, supply has actually increased as indicated for example by crude stocks surpassing the 400 million barrels mark for the first time, reaching a fresh record of 406.7 million barrels last week. For the oil glut to be reduced in a meaningful way, we need to see oil prices at these or lower levels for another several months, say until mid-2015. This therefore implies that oil prices may have to fall further in the short-term. As far as the rest of today’s session is concerned, oil may find some direction from the US dollar in response to the Fed’s policy statement, due at 19:00 GMT.

Ahead of the FOMC, WTI is hovering dangerously above the $45 mark. So far, this level has been defended on a closing basis on 4 occasions. If oil closes below this key technical level in today’s session, or any time in the near future, then it may finally make its way towards $40 a barrel. Ahead of that psychological level is the previous low at $44.20, followed by the 127.2% Fibonacci extension level of the most recent upswing, at $42.25. The 161.8% extension of the same move comes in just below $40, which makes this a key support level. Meanwhile a decisive break above yesterday’s high of $46.55 would be a bullish development in the short-term. In that case, WTI may go on to break above the near-term bearish trend and revisit $49.00 or even $50.00 mark before deciding on its next move.