Crude stocks may have snapped six week build streak

Oil prices have bounced back after Wednesday’s decline and are thus back higher on the week after Monday’s rally. As before, I think oil prices are heading higher. The lack of a clear trend over the past several weeks has coincided with rising US crude oil inventories to new record levels. But after a six-week streak of rises, US oil stocks are likely to have fallen last week. The official Energy Information Administration data will be published later this afternoon. Last night, unofficial data from the American Petroleum Institute (API) showed US oil inventories fell by 884 thousand barrels last week, while those at the storage hub of Cushing, Oklahoma, saw a draw of 1.73 million barrels – the sixth decline in seven weeks. According to the API, stocks of crude products declined sharply, too: gasoline by 893 thousand but more importantly for this time of the year, distillates dropped by a significant 4.23 million barrels. It was a bullish report from the API and if EIA’s numbers confirm these figures then we may see further gains for oil.

Meanwhile from a technical perspective, nothing has changed materially from my last report. The tight consolidation above last year’s key broken resistance levels suggests oil prices have been coiling to break higher. The consolidation has also allowed momentum indicators such as the Relative Strength Index and other oscillators to unwind from “overbought” thresholds mainly through time rather than price, which is again very bullish. Consequently, I am anticipating both oil contracts to break out of their recent ranges and head higher. A potential break above $58.35 on Brent could see the London-based oil contract head towards $63.00, the last support pre-breakdown back in June 2015. The corresponding bullish target for WTI is at $60. As things stand, I will only turn bearish on oil if both contracts break back below their recent ranges i.e. at $54.00 on Brent and $50.80/90 for WTI. That is unless we see other significant bearish patterns beforehand. But for now, we remain pretty much bullish and therefore think that the path of least resistance is to the upside.

Indeed, if in the short-term WTI breaks above the $54.30 resistance level on a daily closing basis then it may start heading towards $55.20 initially – the top of the current range – ahead of $56.50/5 and then $58.00. The latter marks the convergence of a previous support level with the top of a trend line and the 161.8% Fibonacci extension level of the last significant downswing pre breakout.

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