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Oil avoids meltdown as weekly EAI is surprise beat on bigger stockpile drawdown

  • Oil (WTI) trades off the lows as EAI numbers overshoot bullish estimates. 
  • The US Dollar gave markets a knee-jerk reaction after surprise US Dollar strength..
  • The weekly API numbers were a disappointing drawdown and could push Oil prices further downwards.

Oil prices are off the lows and erasing partial losses after the weekly important Energy Information Administration (EAI) Crude Oil Stock Changes pointed to a substantial bigger drawdown than expected. The overnight numbers from the American Petroleum Institute came in below estimates and slashed oil prices. The API number printed only a drawdown of -2.418M barrels, where -2.9M was expected. 

Projections of the EAI numbers for Wednesday point to a drawdown for both the high and low estimate. In order to trigger a spike in oil prices, the drawdown this Wednesday had to beat the highest estimation of -3.1M. The lowest estimation was at -2.39M, so any number between the range or less severe than -2.39M could have translated into cheaper oil. The suprise drawdown of over 6M barrels gave oil a boost in order to get off the low of this Wednesday.

At the time of writing, Crude Oil (WTI) price trades at $78.34 per barrel, Brent Oil at $82.39

Oil news and market movers

  • Higher well productivity together with the lower-than-expected impact from Tropical depression Franklin in Texas could see a boost in US crude oil production in the coming weeks. 
  • European Purchase Manager Index numbers are still in contraction in every sector, which means that demand for crude in Europe might not pick up further from current levels. 
  • The weekly important Energy Information Administration (EIA) Crude Oil Stock Changes went from the drawdown of -5.96M to -6.135M, overshooting the most bullish outlook and triggering a jump in oil prices in the aftermath of the publication.
  • At 13:45 GMT S&P printed its Purchasing Managers’ Index (PMI): Services PMI numbers went from 52.3 to 51 against a 52.2 consensus. Manufacturing heads further into contraction from 49 to 47 where 49.3 was expected. The overall composite drops from 52 to 50.4 and is thus pointing to a stand still. It looks like the Fed's rate choke hold with higher for longer is starting to bite into the economic activity. 
  • Tropical depression Franklin is moving further inland, away from the Texas’ shores. 
  • All eyes are focused on Friday, when the annual Jackson Hole Symposium will be the focal point for the week. In the event,  the US Federal Reserve tends to signal a change in its monetary policy going forward. 

Oil Technical Analysis: with a little help

Oil price is off the low though is still in a slump after the weekly API numbers on Tuesday. Oil takes another step back on Wednesday ahead of the weekly EAI numbers, which could act as catalyst for a downward breakout in the head-and-shoulders pattern on the charts. The line in the sand is $78.50, and once broken oil prices could slide as much as 6%.

On the upside, $81.68,  Monday’s high, is the one to beat in order to trigger a small uptrend. Should WTI continue its performance of higher lows and higher highs, pressure could build toward $82. In order to print a fresh monthly high, the peak of mid-August at $84.32 is the one to beat when demand takes over and supply cannot follow suit. 

On the downside, a temporary bottom is being formed around $78.50 and acts as a base in the current head-and-shoulders pattern. Should the EAI numbers point to a weaker oil price, expect to get the shoulders pattern being completed, erasing the weekly gains from July 20. Expect some support near $77 from the double top on July 13, though rather expect the bottom roughly 6% lower near $74.

WTI US OIL (Daily Chart)

 

WTI US OIL (Daily Chart)

WTI Oil FAQs

What is WTI Oil?

WTI Oil is a type of Crude Oil sold on international markets. The WTI stands for West Texas Intermediate, one of three major types including Brent and Dubai Crude. WTI is also referred to as “light” and “sweet” because of its relatively low gravity and sulfur content respectively. It is considered a high quality Oil that is easily refined. It is sourced in the United States and distributed via the Cushing hub, which is considered “The Pipeline Crossroads of the World”. It is a benchmark for the Oil market and WTI price is frequently quoted in the media.

What factors drive the price of WTI Oil?

Like all assets, supply and demand are the key drivers of WTI Oil price. As such, global growth can be a driver of increased demand and vice versa for weak global growth. Political instability, wars, and sanctions can disrupt supply and impact prices. The decisions of OPEC, a group of major Oil-producing countries, is another key driver of price. The value of the US Dollar influences the price of WTI Crude Oil, since Oil is predominantly traded in US Dollars, thus a weaker US Dollar can make Oil more affordable and vice versa.

How does inventory data impact the price of WTI Oil

The weekly Oil inventory reports published by the American Petroleum Institute (API) and the Energy Information Agency (EIA) impact the price of WTI Oil. Changes in inventories reflect fluctuating supply and demand. If the data shows a drop in inventories it can indicate increased demand, pushing up Oil price. Higher inventories can reflect increased supply, pushing down prices. API’s report is published every Tuesday and EIA’s the day after. Their results are usually similar, falling within 1% of each other 75% of the time. The EIA data is considered more reliable, since it is a government agency.

How does OPEC influence the price of WTI Oil?

OPEC (Organization of the Petroleum Exporting Countries) is a group of 13 Oil-producing nations who collectively decide production quotas for member countries at twice-yearly meetings. Their decisions often impact WTI Oil prices. When OPEC decides to lower quotas, it can tighten supply, pushing up Oil prices. When OPEC increases production, it has the opposite effect. OPEC+ refers to an expanded group that includes ten extra non-OPEC members, the most notable of which is Russia.

Author

Filip Lagaart

Filip Lagaart is a former sales/trader with over 15 years of financial markets expertise under its belt.

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