WTI drops to test key $40.35 support on unexpected EIA oil stocks build

WTI (August futures on Nymex) saw a quick drop to the 40.40 region in a matter of minutes following an unexpected build in the US crude stockpiles, per the latest Energy Information Administration (EIA) weekly data.

The US crude inventories rose by 5.7 million barrels in the week to July 3, compared with expectations for a decrease of 3.1 million barrels.

The bulls, however, quickly regained control and lifted the US oil back onto the 40.50 level, now trading flat at 40.70. Despite the volatility, the black gold remains within the familiar trading range below the 41 handle.

The downside remains cushioned in the barrel of WTI, courtesy of the risk-on rally in the US equities, which buoys the sentiment around the higher-yielding oil. The S&P 500 index is off the highs but trades will bid around 3,150.

Meanwhile, the rebound in WTI remains capped, in the face of the continued rise in coronavirus cases in the US states, which keeps the market cautious. Further, the optimism of tighter supplies globally fades on the bearish US crude inventory report, weighing negatively on the prices.

Looking ahead, the incoming virus updates and the sentiment on Wall Street will likely remain the main driver for the oil-price action.

WTI technical levels to watch

From a near-term technical perspective, the bulls and bears remain in a wait and see mode, as the price clings to the 40.50 level, which is the confluence of the 21 and 50-hourly Simple Moving Averages (HMA). The falling trendline resistance at 40.88 is the level to beat for the bulls, as they look to regain the momentum above the 41 handle. The bullish bias will remain intact as long as the commodity holds above the horizontal 100-HMA and rising trendline support at 40.35.

WTI additional levels