Despite some initial setbacks, Crude Oil prices closed higher yesterday as the US weekly inventory shows an increase of over 10 million barrels.
WTI Crude Oil prices ignored the massive inventory build-up yesterday as prices turned volatile but managed to close in the Green by yesterday’s closed. For the day, WTI Crude Oil closed 2.60% higher to settle at $34.71 a barrel. The weekly Oil inventory report from the US showed an increase of 10.4 million barrels, beating estimates of 2.5 million barrels and posting the highest increase in stockpiles this year. Previously, a day before the American Petroleum Institute’s weekly inventory data showed a build-up of 9.9 million barrels, rising above the forecasts. In total, it is estimated by the EIA that there is close to 518 million barrels of Oil in commercial stockpiles, which it termed as being “historically high”.
The increase in the inventory comes as Crude Oil production last week declined 25,000 barrels per day. Oil prices reacted bearishly on the news, falling close to 2.0% but managed to reclaim and closed bullish by the day’s session.
Despite the short-term swings in Oil prices, it is expected that Crude Oil prices could resume their declines as the markets discount the talks of coordinated production freeze agreements at January levels, which incidentally happens to be a month where countries such as Saudi Arabia and Russia have peaked in their oil production.
Crude Oil Technical Analysis
The daily chart for Oil shows prices have been trending higher after testing the lows near $26.25 in mid-February. Prices have broken the trend line near the $34 handle and continue to trend steadily higher. The next main technical resistance is seen at $38, which could mark a test of the older trend line as well as a previous resistance level where prices tested the $38 handle and failed around late December last year. The candlestick patterns on the daily chart show prices closing bullish following the previous day’s doji pattern. A confirmed higher close could see prices remain poised to surge towards the $38 handle. However, there is scope for a decline back to the $34 to establish support ahead of a rally.
An alternate view of the analysis also points to a possible inverse head and shoulders pattern that could be formed. In this view, if Oil prices fail to clear the resistance at (34 – 35) then a decline could see a potential reversal take place near the (30- 28) support, which could mark the right shoulder. If this view is validated, Oil prices could potentially surge higher and on a break of the (34 – 35) resistance, a longer term target to $42 – 40 could be possible. This view is of course, subject to two conditions:
- That Oil prices fail to break the resistance at 34 – 35 and dip lower
- Form a right shoulder near (30 – 28) level without making a lower low below (28 – 26)
The 4-hour chart for Oil prices shows the potential that currently supports the Inverted Head and Shoulders pattern analysis. Prices are currently trading within a rising wedge/triangle pattern with $35 being the most recent high. Failure to close above 35 and a break below 33.50 could signal a quick move lower to the support near 30.75 – 30.25, close to the identified level of 30 – 28 on the daily chart.
To conclude, watch Oil prices to form a possible low near the 30.75 – 30.25 if the current resistance near 34 – 35 fails as prices could be forming a possible inverted head and shoulders pattern. In the event that Oil breaks above 35, a brief test back to $34 to establish support will see a move towards $38.
