Crude hits fresh multi-week highs, oil inventories watched

The price of crude oil has risen on both sides of the pond today: the London-based Brent contract reached its highest in two weeks, while WTI, the benchmark US oil contract, has achieved its highest level in nearly a month. Oil prices are boosted by the same underlying factor that has dominated the agenda recently: the escalation of crisis in Ukraine. In several eastern cities, pro-Russian activists have occupied government buildings and are calling for accession to Russia. This has pushed Ukraine's interior minister to issue the rebels a 48-hour ultimatum: “political settlement through talks or the use of force.” If Ukraine were to use force to remove the rebels, the situation could really get messy and lead to further gains for the price of oil. Brent prices may rise even more sharply if the West were to impose more sanctions on Russia, especially on its energy exports.

WTI’s rally on the other hand makes less sense. Although a weaker US dollar is partly responsible for the price gains, the effect of this should have easily been absorbed by soft economic data. What’s more, the sharp rise in US oil inventories last week has had no effect on the WTI contract: according to the American Petroleum Institute (API), stockpiles increased by 7.1 million barrels in the week to April 4. Admittedly, the build was partly due to the 1 million barrel increase in oil imports. However given that stocks at Cushing also edged higher, oil prices should have reacted negatively to the data. The fact that they haven’t may suggest that investors do not expect the official stockpiles data, due later this afternoon, to show a similar picture. Indeed, the Energy Information Administration (EIA) is expected to report a build of only 1 million in crude inventories.

Technical view

From a technical point of view, WTI has taken out a short-term bearish trend line and also broken the old resistance level of $102.20. It has thus paved the way for further gains, with the next potential resistance level coming in around $103.50. This is where a longer-term bearish trend line converges with the 78.6% Fibonacci retracement level of the downswing from the March peak. Meanwhile the Brent contract is currently testing the 50-day moving average at $107.85. A potential close above here may expose the 200-day SMA ($108.75) for a test.