WTI Crude – Mute on lower than expected inventory gains

After gaining a surprising 6.7 Million barrels in inventory stock last week, crude oil is expected to increase another further 2 Million barrels. However, this week’s figure came in at a measly 230K, 10% of what was expected. WTI prices did rally higher, but the bullish response was highly disappointing, amounting to a mere 20 cent increment, before bears take over once more quickly, sending price back down to 95.60 per barrel. The muted response from the inventory numbers is in line with what we’ve discussed previous week, suggesting that these inventory numbers are becoming less relevant as indication of Oil’s supply and demand. However, we were still expecting the numbers to illicit higher volatility, and the lack of response is indeed surprising.

Perhaps market is also trying to make sense of the lower than expected gains in Crude versus the slow down of inventory decline in Cushing OK. Distillate numbers are also much higher than expected, coming in at 1.8 million versus 500K expected. Gasoline on the other hand declined 0.9 million barrels, twice than expected. The contracting numbers failed to paint a uniform picture, and made it hard for directional trade. But these numbers affirm what we suspected – Don’t expect DOE numbers to give you insights on actual demand/supply, at least not now.

Hourly Chart

From a technical perspective, the eventual rally that occurred during US trading hours shows that bullish momentum may be waning as price failed to reach Monday’s high. It is as though bears are sensing weakness in the bulls and traded continuously lower (albeit at a slow pace). Currently price is dipping below 96.0 round number and the ceiling of 7th and 8th May consolidation. Stochastic reading is pointing down with distance between Stoch/Signal line remaining constant, suggesting that both lines may still head lower despite marginally within the Oversold region.

Looking at the balance of things, 95.0 should be able to provide some support which may coincide with the bottoming of Stochastic reading, adding strength to the support level.

Daily Chart

Daily Chart shows that peaks from 2013 has been slightly lower consecutively, suggesting that we are facing a mild downtrend. If price fail to break 97.0, a strong downside scenario should be considered especially if 95.0 but preferably 94.0 is broken. Stochastic readings suggest the same with readings appearing to flatten out deep within the Overbought region which suggest that price may be experiencing a bearish cycle soon.

With inventory numbers of no great help to gauge supply/demand, we are forced to rely on global growth figures to infer what future demand for Oil may be. With ECB latest report slashing GDP forecast from a 0.1% growth to -0.4% in 2013, it is hard to imagine global growth to fuel higher demand in oil which can help to push price higher. Chinese’s growth has also been slated to slow down by no other than PBOC’s Zhou himself, while US growth remain “modest”, recent lower than expected inflation spurred talks that deflation risks are rising, which will push Oil prices lower, not higher.

That being said, Oil is traditionally known to be volatile, and highly susceptible to speculative action. As US stocks continue to carve out new highs, it is hard to imagine oil prices collapsing spectacularly from here within a short time. Then again the slide in April from 97 to 86 USD per barrel within 3 trading weeks suggest that anything is possible. Traders will be well advised not to take anything for granted right now especially when conventional inventory numbers are no longer helpful.

More Links:
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AUD/NZD Technicals – Bullish Channel Breakout awaiting Takeoff
USD/JPY Technicals – Potential Third Top Forming

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.