WTI Crude oil prices have been trending lower over the past few weeks, but it is very likely that oil prices will soon resume a new leg to the bullish rally in the near term. Yesterday, Crude oil futures for August delivery fell 1.44% after prices attempted to reclaim the $50 a barrel handle. Further upside is expected on a break above the $50 price level but at the same time, there are considerable downside risks as well, underlining the fragile recovery in oil price, where the markets are now dealing with increased production yet again.
The weekly Crude Oil inventory report released by the EIA showed that US commercial crude oil inventories decreased by 900k barrels last week, keeping US crude inventory at 530.6 million, which is still a historically high level. Analysts were expecting to see a drawdown of 12.90k barrels for the week ending June 17th. This was the fifth consecutive month of drawdown in oil inventories according to the EIA report.
Meanwhile, earlier on Tuesday, the American Petroleum Institute’s weekly crude oil inventory report showed that crude inventories fell by 5.2 million barrels for the same week. The API report also showed that gasoline supplies fell by 1.5 million barrels while distillate stockpiles were also lower.
Oil markets as with most markets have been taking cues from the UK referendum theme. A shift in sentiment is likely to see crude oil prices rally as traders expect that it would be positive if Britain remains in the EU and the reaction to the inventory report was mostly muted.
Crude Oil – Technical Outlook
On the weekly chart, Oil prices continue to edge along higher after clearing the support/resistance level near 44.80 – 43.40 a few weeks ago. This opens up the downside risk of a pullback to the 44.80 – 43.40 support level that could be tested, while the resistance near 54.80 – 55.00 remains very likely to be the upside target in Oil prices. The weekly candlesticks show price action relatively subdued with the past two weeks forming a doji pattern.
On the daily chart, Oil prices have been struggling around the $50 handle for the past few weeks. While prices slipped lower, support was established near the $46.77 – $46.80 level which previously marked the top of the bullish flag pattern. So far, prices have managed to bounce off the support, but further upside can be confirmed on a close above the $49.50 – $48.10 support level. Alternately, failure to break above this near-term support/resistance level could see oil prices risk lower to test the main support near 44.80 – 43.40 region
To conclude, while oil prices look biased to the upside, failure to close above the $50 level could see WTI Crude oil post a modest recovery which could see a near-term correction down to $44.80 – $43.40. On the other hand, a bullish continuation could keep prices well supported for an eventual rally towards $55.25 region.