Crude oil is trading mixed this afternoon with Brent up and WTI down. Although a lot has been made of the dollar’s impact on oil prices, this alone cannot explain their falls. The latter obviously has had some impact on buck-denominated commodities across the board, with gold prices also falling sharply today. But WTI is falling simply because there is still too much crude being produced in the US, as evidenced, for example, by the recent sharp increases in oil inventories to record levels.
Today, the market was hoping that the weekly supply data from the US Energy Information Administration (EIA) would show a decrease in stockpiles after the American Petroleum Institute (API), an industry group, reported yesterday that US crude inventories fell by 0.4 million barrels last week. However this wasn’t to be as the official data once again showed a sharp increase in stocks– this time to the tune of 4.5 million barrels, admittedly a slower pace compared to recent weeks. Crude stocks at storage hubs in Cushing climbed by 2.3 million barrels, while inventories of oil products were mixed with distillates rising by 2.5 million barrels and gasoline stocks decreasing slightly.
As the session wore on however WTI managed to bounce back a little, although at the time of this writing it was still holding in the negative territory. The technical outlook on US oil remains bearish after it formed a triple top reversal pattern around the $54 handle a few weeks ago. If it closes today’s session or one of the upcoming sessions below the prior low of $47.80 then further technical selling could result. In that case, a move down to the Fibonacci extension levels at $46.55 (127.2%) and $45.00 (161.8%) would be highly likely.
In contrast, Brent is holding its own relatively well above the shallow 38.2% Fibonacci retracement level of the recent upswing, at $56.20. However now that the key support at $58.50 is taken out, the path of least resistance for Brent is also to the downside – that is unless of course the London-based oil contract rallies back above this broken support level. Meanwhile the next support could be $55, the 50-day moving average and a psychologically-important level. Beyond this level there is nothing major until the 61.8% Fibonacci retracement at $52.00.