Oil pulls back after inventory draw

Summary:

  • Weekly crude Oil inventories: -2.7M vs -1.4M exp

  • Drawdown smaller than API (-6.1M) and components show large builds

  • Oil dips lower but remains above $60 a barrel mark

 

There’s been a bit of a pullback in the energy market in the past hour or so, after the weekly crude oil inventories delivered a slightly negative message for bulls. The EIA figure for the headline came in at -2.7M, lower than both the median forecast (-1.4M) and the prior reading (-1.7M). However, against last night’s private API number of -6.1M it still appears relatively high and therefore could be seen as negative for price.

After initially popping higher on the larger than expected drawdown, Oil has fell around 80 ticks as traders realised the components of the release were actually mildly negative for price. Source: xStation

 

Furthermore, the subcomponents of the report were also not exactly what bulls would have been looking for with both distillates and in particular gasoline rising substantially more than expected, while refinery utilisation fell. US production also rose once more, further offsetting the OPEC + cuts that are targeted at “rebalancing” the markets. The following is shown in actual vs exp:

 
  • Gasoline: +7.5M vs +3.0M

  • Distillates: +3.0M vs +1.4M

  • Refinery utilisation: -1.5% vs -0.60%       

  • US production: 11.9 Mbpd. Up 200k from last week  

 

The bigger picture for Oil remains potentially constructive, with a possible inverse head and shoulder formation being carved out. At present the market is forming what could be seen as the second shoulder in this setup, with low of 58.95 required to not be broken below. The all-important neckline here is somewhat subjective and could be seen as between 62.50 and 63.75. Price would need to break above here to trigger the setup which would target a measured move above of around $12-13 to the mid $70s. Also note that the 8 and 21 EMAs have recently printed a bullish cross. A break below 58.95 could lead to another push lower with December lows of 50.70 potentially key support.

The 8/21 EMAs have printed a bullish cross as a longer term inverse head and shoulders could be forming. 62.50-63.75 may be seen as the neckline, with 58.95 near-term support. Source: xStation

 

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