Crude up for fifth day ahead of US oil inventories

Believe it or not, crude oil is actually up for the fifth consecutive day now. Despite on-going bearish news flow and downbeat sentiment, oil prices appear stable ahead of the official US weekly crude inventories data from the Energy Information Administration (EIA) later this afternoon. Last night, the American Petroleum Institute (API) reported a surprise build of nearly 0.9 million barrels in oil inventories, and said stocks of gasoline rose by 1.4 million barrels. The market had been expecting a reduction to the tune of 2.2 million barrels in the headline figure. Nevertheless oil prices were able to quickly recover from small declines. Oil market participants clearly didn’t believe the API stats were accurate. Who would blame them? The API data have over- or under-estimated the official EIA estimates by big margins in recent weeks. But if the EIA were to confirm the oil inventory build then oil prices may halt their recovery processes.

It is worth remember that crude oil has been stuck in a wide range for over a year, as speculators weigh the impact of OPEC's efforts to reduce global oil inventories against rising US shale supply. With crude falling near the lower end of the range in recent week, prices have again rebound. As have been reported by both the CFTC and ICE, net long positions from record levels have been trimmed sharply in recent weeks as bearish speculator expanded their short positions. These market participants may have taken profit on their short positions at these lower levels in the past several days. The latest positioning data from CFTC, due for release on Friday, may confirm this by revealing a modest rise in net long positions.

From a technical perspective, WTI’s ability to reclaim the broken swing points at $42.23 and £43.80 is bullish as it shows the sellers failed to hold their ground at these battle grounds. Does it mean prices will go up now? No, not necessarily. But what it does mean is that the sellers are finding increasingly less reasons to maintain their bearish positions as more and more resistance levels break down. At the time of this writing, WTI was testing another resistance area between $44.20 and $44.65. A potential break above here would be a further bullish development. As far as the sellers are concerned, well they want to see clear weakness in oil prices again now. For them, it would help if WTI were to break some key short-term support levels, like $43.80, ideally on a daily closing basis.