WTI recovers sharply from brief dip below $42.00 amid focus on inventory data and geopolitics

WTI crude futures have been choppy in recent trade, slipping below $42.00 initially following a mixed weekly EIA inventory report, but then recovering sharply back to $42.20 as focus returned to a potential escalation of US/Iranian tensions in the Trump Administration’s lame-duck session. WTI futures hold onto gains on the day of around 50 cents, or more than 1.0%

Mixed official crude oil inventory report, geopolitics in focus

In contrast to Tuesday’s private API inventory data, the official EIA report did not see a much larger than expected build in headline crude oil stocks. Indeed, the build was more modest than expected at 0.768M barrels (consensus was for a 1.65M barrel build). Sticking with the bullish aspects of the report, Distillates also saw a much larger than expected draw of more than 5M barrels (consensus was for a 1.457M draw).

However, turning to the more bearish aspects of the report, both Cushing and Gasoline saw larger than expected builds and US weekly crude oil production jumped sharply to 10.9M barrels per day from a rate of 10.5M barrels per day last week.

Given that the large jump in US production, coupled with the fact that API data on Tuesday had already flagged the possibility of a larger than expected draw in Distillates, the bears initially pushed WTI below $42.00.

However, at the same time as the above inventory data was released, news broke that US Secretary of State Pompeo will impose fresh sanctions on Iran, potentially putting the country’s already severely constricted oil exports under further threat. This news is likely to have assisted WTI’s sharp recent recovery back above $42.00.

Concern that the Trump administration might act more recklessly regarding Middle Eastern policy in recent days has arguably been one factor supporting oil prices. Indeed, news broke on Tuesday that US President Donald Trump was talked out of launching a military strike on Iranian nuclear facilities.

Technical picture remains bullish following Tuesday’s pennant breakout

WTI broke to the upside of a short-term pennant structure on Tuesday (see the four-hour chart) and is now testing longer-term trend resistance in the $42.20 region. WTI bulls will be eyeing a move back to high of the day around $42.70 and perhaps a test of last Wednesday’s highs around the psychological $43.00 mark.

To the downside, support in the form of lows of the day resides at $41.82 and below that, the downwards trendline of WTI’s recently broken pennant structure ought to offer support in the $41.20-30 region.

WTI four-hour chart