US Weekly Crude Oil Inventories post a surprise drawdown as inventories fell 4.90 million in the week ending April 1st, 2016
Summary:
- Crude Oil extends strong gains on a surprise inventory drawdown
- April 17th marks the meeting between some OPEC and non-OPEC countries in Doha to discuss freeze production talks
- Iran is still the main point of debate. Unwilling to freeze production until it reaches 4 million capacity
- FOMC meeting minutes push the dollar lower, supporting the oil price rally
Crude Oil prices gained strongly yesterday with fundamentals supporting the rally. Weekly Crude Oil inventory report released by the US Energy and Information Administration showed a surprise drawdown for the week ending April 1st. US commercial crude oil inventories fell 4.90 million, against analyst expectations of an increase of 3.10 million in inventory following the previous week’s increase of 2.30 million.
Ahead of the EIA’s report, the API report released on April 5th showed a drawdown of 4.30 million against estimates looking for a 2.90 million increase. Overall, yesterday’s drawdown in Crude Oil has managed to end a 7-week buildup in inventories. Following the release, Crude Oil futures gained strongly, rising by as much as 3.20%. The FOMC meeting minutes released later in the evening came out dovish, weakening the US dollar thus helping WTI crude oil prices to extend further the gains. By yesterday’s close, WTI Crude Oil settled at $37.72 a barrel.
The OPEC and non-OPEC member meeting is also due on April 17th and is likely to weigh on the markets. While there were bickering among various countries, most recent comments from Kuwait’s OPEC minister Nawal al-Fezaia were encouraging for Oil prices. He said that “Oil producing countries have no option but to reach an agreement to freeze output when they meet on April 17th in Doha because prices are low.” While the headline might seem positive, the fact remains that differences still prevail. Saudi Arabia is now talking about freezing its Oil production at February levels, which are higher than they were in January. It remains to be seen how Iran will react to the matter. Iran was quite clear that it would not consider Oil production freeze unless it hits a 4 million barrel per day production levels. However, backdoor channels might prove to spring a surprise amid all the noise.
Crude Oil Technical Outlook
The weekly chart for Crude Oil shows prices currently attempting to retrace the losses from the previous two weeks. Following the downside breakout in prices, after the inside bar was formed, the current retracement is likely to be limited to the $40 level in the near term. The hidden bearish divergence remains in place which is likely to confirm the downside bias for prices to test the $32.70 level of support.
On the daily chart, Crude Oil prices have managed to bounce off the lower median line but stands below the resistance of 38.25 – 38.10. Clearing this resistance will see further upside to the 40.50 – 40.0 level. A close above this level will likely shift the bias back to the upside. For now, Crude Oil price gains are likely to stay limited near this resistance level keeping the option open for a dip lower.
On the 1-hour chart, Oil prices are near the resistance level of 38.25 – 38.10. Capping the gains in Oil prices here could mean resuming a downtrend which could see prices dip towards $32.5 – $32 levels in the near term.
In conclusion, Oil prices are likely to see a new leg of declines following the test of resistance at 38.25 – 38.10. The dip lower could see prices test the broken resistance at 32.5 – 32.7 to establish support.
