WTI looks for a firm direction below $41.00, EIA inventories eyed

WTI stays depressed around $40.50 while heading into the European open on Wednesday. The oil benchmark recently snapped three-day winning streak the previous day as risk aversion wave hit the brakes on the bullish momentum near a two-week top. Also favoring the bears were downbeat stockpile data from the American Petroleum Institute (API).

Data from industry player API suggest that the oil stockpiles rose two million barrels versus the previous draw of 8.156 million barrels during the week ended on July 03. The news followed Citibank’s upward revision to price forecasts to $38 per barrel.

On the contrary, European oil giant, Eni, warned of a $4 billion (3.5 billion euro) in post-tax impairment charges against non-current assets for the second quarter, plus/minus 20 percent. The moves followed the earlier cut in energy price forecasts by global leaders Shell and BP.

While the oil benchmark’s earlier rise could have taken clues from the hopes of the economic restart, the coronavirus (COVID-19) resurgence dimmed any such prospects. Also weighing on the demand outlook can be China’s tussles with the US, the UK, Australia and India that together might dim the economic prospects of the world’s largest commodity user. Furthermore, speculations that the global oil suppliers, mostly the OPEC+ group, might not extend the output accord beyond August add further weakness on to the commodity prices.

Against all odds, the recent recovery in the economic data and China’s buying the dip fashion, as portrayed by Caixin during the last week, favor the bulls to battle above $40.00.

Considering the mixed set of catalysts, oil traders need stockpile data from the Energy Information Adminisration (EIA) for fresh impetus. With downbeat forecasts and the on-going risk-off sentiment, the black gold might lose the $40.00 threshold.

Technical analysis

Considering the commodity’s inability to stay strong beyond $40.00, coupled with the bearish MACD signals on the four-hour chart, the sellers are likely to wait for an entry. As a result, a three-week-old support line, at $39.70, becomes the key to watch. On the contrary, a clear break above the immediate resistance line, at $40.96 now, will need a sustained cross past-June month high of $41.65 to challenge February month low surrounding $44.00.