Crude Oil Tumbles Ahead Of The US Crude Oil Inventories

Mar 22 2017, 3:36 pm
OPEC_Crude Oil

OPEC headquarters

Since the beginning of this week, Crude Oil prices has been declining gradually, reaching critical technical levels.

This is despite the fact that OPEC sent out few remarks to the media, speculating a possibility to extend the production cut deal, which expires in June of this year.

However, these remarks were not enough, Crude prices edged higher for a limited time only, before it continues to decline again later today.

One of the reasons behind the recent decline after OPEC member’s remarks, Russia stated clearly that they couldn't rule out the participation in any extension of December deal, which means that tensions between OPEC and Non-OPEC members is likely to rise ahead of June.

No Catalyst To Support The Prices

We have been saying this over the past few months since Crude Oil prices were trading within a tight range since the beginning of this year.

There is no fundamental catalyst to support the prices above $50 barrier, whether Brent or WTI Crude.

The prices need action and not remarks. This is exactly what happened back in January of last year when the prices were significantly low, OPEC noted that the members would meet to agree on freezing the production.

Yet, the deal came in 12 months after (December). Now they are probably doing the same thing. The prices are declining, and OPEC rushed to support through remarks to keep the hopes open for a possible action in the future.

However, this time, it might be different.

US Crude Oil Inventories Ahead

During the US session ahead, eyes will be on the Crude Oil Inventories, which set to rise by 1.9M barrels last week, compared to a deficit of 0.2M barrels the week before.

Last week deficit was the first deficit after nine weeks of consecutive surplus. Yet, the deficit is just tiny, compared to the surplus of the past nine weeks.

API expects a build over 5 Million barrels, which might be more accurate. Over the past few weeks, API figures were more accurate, which keeps the risk higher for a possible build in today’s inventories figures.

Brent Below 200 DAY MA

In a dramatic development, Brent Crude slides below its 200 DAY MA today for the first time in over four months.

Last week, Brent tested that moving average and bounced right after. However, it was unable to stabilize, leading to a breakthrough that support earlier today.

In the meantime, the technical indicators are strongly bearish, especially that Brent is now trading below its entire key moving averages, including 50, 100 and 200 DAY MA, which keeps the possibility for a deeper decline ahead.

Looking at the daily chart, Crude is still within a retracement mode; it retraced by 50% from the recent rally that began back in November of last year as shown on the chart.

With today’s decline, it looks like the retracement is likely to continue toward 49.15, which represents its 61.8% Fibo of the same rally.

A break below that level would be significantly bearish.

WTI  At Risky Support

WTI has a different story, so it has been trading below its entire moving average since two weeks (10 trading sessions) which accelerated the downside pressure over the past few days.

Moreover, WTI is now at 61.8% retracement of the recent rally as shown on the chart. WTI is now at a significant support area, which should be watched closely.

A breakthrough that ratio would clear the way for another leg lower, especially if today’s inventories showed higher build that expected.

In all cases, the bearish outlook is here to stay for both crudes until an action is taken by Oil Producers.

Nour Eldeen Al-Hammoury

Nour Eldeen Al-Hammoury has more than ten years of experience in focusing on foreign exchange and global economic developments, as well as central bank policies and intermarket analysis (global markets relationships). Nour Eldeen is a regular on many major TV networks (several times each) such as: BBC Radio, BBC World News, Al-Jazeera, Al-Hurra TV CNBC Europe, CNBC Asia, CNBC Arabia, Al Arabiya, Bloomberg, Russia Today, Dubai TV, Sama Dubai, Skynews Arabia, Qatar TV and Future TV News.