Crude Oil Technicals – Unexpected Inventory Levels showing lower demand

US Crude settled lower on Wednesday after surprising huge inventory increase spook traders about demand conditions. Crude-Stock grew by 3.8 million barrels, more than 4 times the expected increase of 0.9M. US domestic production increased by 1.3 million barrels a day compared to 1 year ago, while demand has eased due to local refines conducting regular maintenance. However, even taking into seasonal adjustments, current crude-stock is still extremely high, with current stock at the highest level in 82 years when compared to similar time of the year.Price trades lower, shedding more than $1.0 per barrel, and giving up the gains post the death of Venezuelan’s President Hugo Chavez’s announcement. However price has also bounced up higher and is currently trading flat during the Asian session.

Hourly Chart

The quick sell-off failed to test the previous swing low back on 5th Mar, which suggest that the bears may not be as strong despite the oversupply. Price has since rallied back into the consolidation region around 90.0 and right in the center of current Kumo. There is also a hint of a bullish Kumo twist coming which may allow price to rally, breaking Kumo to test the 50% Fib above around 91.0.

Daily Chart

Stochastic on the daily chart appears to have bottomed out. If price manages to clear 91.0 hurdle with with Stochastic readings pushing above 20.0, we could see acceleration of bullish momentum towards the 38.2% Fib and potentially breaking the 93.0 ceiling.

Recent Stock highs seem to suggest that risk appetite has came back in. It is strange to see that the Dow Jones Transportation index continue to strengthen while WTI weakens, which suggest inherent weakness in crude itself. Perhaps the rally from 84.0 back in Nov 2012 has been overstretched and price is correcting lower to reach a fundamental equilibrium. If that is the case, further bearish movement will find it hard to gain traction and we could see price potentially trending sideways similar to early Oct 2012 price action.

More Links:
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