WTI Crude – Bullish Acceleration as Double Top Invalidated

WTI crude price climbed higher yesterday as inventory numbers grew to a smaller extend than expected. This is the 3rd week in a row where inventory levels are lower than analyst estimate. However, unlike the previous 2 weeks, yesterday’s gain resulted in a stronger and sustainable push. Certainly there are strong technical reasons why bullish acceleration occurred, but there are also fundamental reasons why this lower inventory levels was regarded differently. From the Department of Energy came other numbers that are pertinent to Crude’s demand: Cushing OK Inventory grew 35K vs 1078K previous, Distillate Inventory grew 97K vs 500K expected, while Gasoline Inventories fell 3,928K vs an expected 600K drop. A lower than expected refined inventories suggest that demand on the end products are higher than expected, and will also result in an increase of demand in Crude itself. All these tie up with what the American Petroleum Institute report told us on Tuesday – demand is climbing back.

Hourly Chart

Before the bullish news was released, price took a slight beating due to lower than expected Durable Goods Order. However, 89.0 support remain robust and it is important to note that price has already recovered, breaking the 3 black crows candlestick pattern with a strong Bullish Engulfing candle before DOE data sent price above the rising trendline to spark a fresh bullish breakout. This is testament to the shift in sentiment that has been mentioned yesterday. As long as price is able to sustain above 89.0, initiative will be on the side with bulls. Currently, there isn’t any evidence that bullish momentum has stalled. Price continues to point higher after pushing away from a shallow dip during early Asian trade.

Daily Chart

Previously we’ve mentioned how the double top pattern has been invalidated by price crossing 89.0, but preferably 90.0 should be cleared to give confidence in current bullish efforts. Well, 90.0 has been taken out, and price is currently facing an interim resistance around 92.0. It is possible that bullish momentum may slow down around 92.0, and a break higher will open up 94.0 as the next significant level with 95.0 as interim resistance and ultimately 98.0 as final objective. Stochastic readings continue to look bullish as readings are pushing higher with Stoch line increasing distance between itself and the Signal line. Readings are also far away from the Overbought region, giving current breakout lots of room to run.

Fundamentally, we need to ask ourselves is this decrease in inventory a flash in the pan or a reversing trend for oil demand? Global outlook continue to look weak, yet there is no denying that inventories are going down with API and DOE corroborating with each other. Perhaps the issue is from the supply end then. A large criticism has been placed on US Oil producers as they continue to push more oil down the pipeline even when refineries are packed to the brim. We could be seeing a streamlining of supply chain management from these producers which will help to push oil prices up in the future.

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