Crude oil ended higher in its third positive close out of the past four weeks, thanks to ongoing Middle East tensions, falling US crude inventories and storm Barry in the Gulf of Mexico – all raising short term supply shock risks. But Hurricane Barry was not as destructive as feared after making landfall on the Louisiana coast on Saturday with winds barely meeting hurricane criteria. For that reason, crude oil speculators evidently took profit on Monday which saw prices fall noticeably. Both oil contracts started Tuesday on the front ahead of US oil inventories data.
Monday's selling did indeed look like it was driven by profit-taking and technical selling given the small ranges oil prices had traded around in the closing days of last week, after a burst of bullish momentum earlier in the week had probably seen speculators tighten their stop loss orders to protect their profits from evaporating in what is a headline-driven market. In addition, both contracts had reached key resistance levels with Brent at $67/68 and $60/61 rage, levels which were formerly support and now resistance. Unless these resistance levels break, there is a risk we may see a deeper pullback in the coming days amid concerns over Information Administration (EIA) tomorrow afternoon a deteriorating demand outlook.
On the supply side, traders will be watching the latest US oil inventories data closely after the recent sharp falls in oil stocks. If we see more unexpectedly sharp de-stocking in crude inventories, then this could keep prices supported for a while yet. However, if a bigger build is reported then this will likely give speculators an excuse to sell oil aggressively after the recent rally, which may have potentially ended following Monday's sell-off around the resistance levels mentioned above. The American Petroleum Institute (API) will report their unofficial figures tonight ahead of the government data from the Energy Information Administration (EIA) tomorrow afternoon.
Ahead of these, Brent and WTI were both hovering just below the lower end of their respective resistance areas of $67.00 and $60.00 after starting the session on the front foot. So, there was the potential for prices to turn lower given yesterday's bearish-looking price candles.
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