WTI Crude – Inventory overflow dampening prices

Crude oil inventory came in at 2,707K barrels compared to analyst forecast of 2,050K, suggesting that demand of Oil has dropped. This fact, coupled with Manufacturing PMI slowdown in Europe and UK, pushed WTI to 94.0 USD per barrel, losing more than 2% in value and clocking the largest drop since November 2012. Current inventory stocks stands at 388.62 million barrels, highest since 1990 and closing in on the record 391.9 set in 1982. The over supply situation may not be eased anytime soon even though Chinese PMI suggest a pick up in growth. China’s growth in oil consumption has not been proportionate to its industrial growth for the past decade as they prefer to seek coal as primary source of energy. Even when they purchase oil, US soil is not the first place for them to go with Russia up North and Middle East to the West providing more than enough coverage. Hence it is unlikely that the recovery of China in 2013 will be able to help ease the oversupply concern.

To worsen matters, Exxon Mobil has shut its Pegasus pipeline on Friday, resulting in even less oil being able to be sold and delivered at the Cushing, Oklahoma crude hub. Weather is not on oil’s side either, with winter easing and spring coming, energy usage is expected to drop dramatically with demand for heating oil falling, impacting demand in crude.

Hourly Chart

From a technical standpoint, price has since stabilized significantly with 94.0 support preventing further declines. Stochastic readings suggest a pullback/recovery may be happening soon with readings peeking above the 20.0 threshold. 95.5 is the level for bulls to beat; ability to break 95.5 resistance and preferably 96.0 will help bulls find firmer footing. Failure to trade higher to these levels will put bears in charge for a return of bear trend easily.

Daily Chart

Daily chart pre-warned that a sell-off was possible with recent highs failing to break above 98.0 Price has now broken below both the 76.4% and 61.2% Fib and approaching the 50% Fib fast. If the 50% fib is broken, bottom of consolidation zone found in Mid march may be a viable bearish objective and ultimately points to a 0% reversal with 89.0 and opens up possibility of a return to 84.0 (early Nov levels). Stochastic readings add more weight to the bearish scenario, with readings topping and heading lower, signalling a bear cycle that may be able to bring price lower as discussed previously.

Dow Transportation may provide more ominous signs for WTI in the near term. The stock index also took a tumble yesterday, eroding most of the gains in March and threaten to break lower further. It seems that even corporate demand for oil may fall even further within US, which could be the final nail in the coffin to seal WTI’s fate.

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