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

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)