The latest crude inventories data has reminded investors that the supply glut is here to stay for the time being. This afternoon, the Energy Information Administration (EIA) reported another 4.9 million barrel increase in weekly oil stocks. Not only was this more than 3.7 million expected but was also significantly higher than the build of 1.6 million barrels that the American Petroleum Institute (API) reported last night. At 417.9 million barrels, US crude oil inventories have thus risen to a fresh record high. Stocks of oil products were mixed with gasoline inventories showing a build of 2 million barrels while distillate stocks fell by a sharp 3.3 million barrels due to stronger demand for heating amid the cold weather. As the headline inventories number was higher than expected, WTI prices have taken another leg lower. Nevertheless, the recent falls in rig counts mean growth in oil production may fall more profoundly than some currently expect, so there is a chance for prices to recover noticeably by around the middle of the year. However, the EIA still expects US crude oil production to rise this year, on average by a total of 9.3 million barrels per day (bpd). This is just 10,000 bpd less than the EIA’s forecast from last month
As we reported yesterday, it looks like the corrective trend in oil is basically over, which points to more losses in the short term. WTI has had two unsuccessful attempts at trying to break above the $54 level in recent days, thereby creating a double top reversal pattern. It has now taken out the short-term bullish trend line and also broken below the psychological $50 handle. This level could now turn into resistance upon retest, although a decisive break above it could pave the way towards the next resistance at $51.00. The next support area is between $47.35 and $47.65 (shaded in blue), this being the meeting point of prior low with the 61.8% Fibonacci level of the recent rally. This level also marks the neckline of the double top pattern. Needless to say, a break below here could pave the way for some significant losses.
In contrast, Brent is currently testing its relatively shallow 38.2% Fibonacci level of the recent upsurge, around $54.00. If the buyers hold their ground above this shallow retracement level it would suggest that it is they rather than the sellers who are in control of the near-term trend. But now that Brent has already fallen below its 50-day SMA ($56.25) and also support at $57.50, this suggests that it’s the sellers that may actually be in the driving seat. The medium term bias would turn bearish on a break below key support at $53.00.