Oil prices rose to their highest level in two months as U.S. inventories fell more than twice what was expected. Where will it lead us?

Trading position

We took the position in the forecasted $67.53-67.94 key support zone, and some partial profits were saved by our suggested stop-win at $68.82 last week. However, what’s the most important: the main target that we expected in our previous editions of Oil Trading Alerts at $72.30 was finally reached yesterday!

Market analysis

U.S. crude inventories for the past week fell 6.4 million barrels (Mb), more than double what analysts had expected (2.7). Gasoline reserves have fallen by 1.9 million barrels, against 3.3 million expected. Notably, strategic crude oil reserves have also declined, by 500,000 barrels.

This phenomenon could be explained by the maintenance of a high level of exports despite the impact on production of the passage of Hurricane Ida in the Gulf of Mexico.

Exports have indeed increased compared to the previous week and are now higher than those of the same period last year.

As a consequence of Hurricane Ida, many companies had to suspend the activity of their rigs in the Gulf of Mexico, as well as of several refineries in Louisiana, also hit by the extreme climatic episode.

As a result, gasoline deliveries remain below their level of last year, even taking into account the drop in demand linked to the end of the summer period, with cooler temperatures.

Our view now is that we could see a pullback to previous supports, either $70.61 (which wouldn’t be the best entry from the risk-to-reward point of view) or $69.39 (which would be preferable). This retracement could either happen (Fig.1):

  • Sraightaway, which would confirm a long-term bearish trend configuration by failing to break higher, above the $73.52 and $74.77 highs (the next resistance levels). Therefore, the market would be topping at a lower high (as defined by the Dow Theory) [scenario A].

  • Once the auctioneers push the prices higher (at least above $73.52) – this scenario would redefine a new long-term bullish trend (with higher highs) [scenario B].

Given the recent market developments, the weekly chart (Fig.2) shows a bullish engulfing candle that could eventually confirm the continuation of a bullish trend.


Figure 1 – WTI Crude Oil (CLV21) Futures (October contract, daily).


Figure 2 – WTI Crude Oil (CLV21) Futures (October contract, weeky).

In summary, our trading plan on crude oil relies on various scenarios that we have described. For now, in order to see a clearer market picture, we will wait for confirmation. However, as always, we provide you with a pre- defined position that will (or not) be executed, depending on the next price action and oil supply/demand.

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All essays, research and information found above represent analyses and opinions of Przemyslaw Radomski, CFA and Sunshine Profits' employees and associates only. As such, it may prove wrong and be a subject to change without notice. Opinions and analyses were based on data available to authors of respective essays at the time of writing. Although the information provided above is based on careful research and sources that are believed to be accurate, Przemyslaw Radomski, CFA and his associates do not guarantee the accuracy or thoroughness of the data or information reported. The opinions published above are neither an offer nor a recommendation to purchase or sell any securities. Mr. Radomski is not a Registered Securities Advisor. By reading Przemyslaw Radomski's, CFA reports you fully agree that he will not be held responsible or liable for any decisions you make regarding any information provided in these reports. Investing, trading and speculation in any financial markets may involve high risk of loss. Przemyslaw Radomski, CFA, Sunshine Profits' employees and affiliates as well as members of their families may have a short or long position in any securities, including those mentioned in any of the reports or essays, and may make additional purchases and/or sales of those securities without notice.

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