Forex Trading Library

EIA reports another week of inventory buildup. Oil prices a 3-week low

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Crude oil futures contracts for October delivery closed  at $44.85 a barrel yesterday, losing over 3.30% on the day as the US Energy and Information Administration (EIA) data showed a second consecutive week of build-up in US crude oil inventories.

After inventories increased by 2.5 million barrels two weeks ago, the week ending August 26 saw an additional 2.3 million barrels in inventory buildup. It was more than the forecast of 1.1 million build up and the data follows the API’s report earlier on Tuesday which showed an increase of 942k barrels in inventory. Gasoline supplies fell by 700k while distillate stockpiles were down 1.5 billion barrels. Anthony Starkey, manager of energy analysis at Platts Analytics called it “another poor report that is not providing any evidence to market observers that the suggested tightness in the market is appearing.”

US Crude Oil Stockpiles Inventory w/w (Aug 25, 2016) - 2.30 million vs. 1.1 million (exp)
US Crude Oil Stockpiles Inventory w/w (Aug 25, 2016) – 2.30 million vs. 1.1 million (exp)

Oil contracts fell to a 3-week low yesterday but prices were seen stabilizing earlier today. Despite the declines, oil futures closed the month of August on a bullish note, gaining 8.10% after prices fell for two straight months in June and July.

Saudi Arabia and Iran show no signs of easing production

On Tuesday, Bloomberg reported that Iran’s deputy minister announced that his country plans to boost output by 200k barrels a day by the end of the year, underpinning any hopes for an output freeze. Still, a few OPEC members are hopeful of a positive outcome. Iraq’s prime minister was quoted as saying that his country supports an OPEC production freeze in reference to the upcoming informal talks by OPEC members later this month in Algeria.

However, OPEC’s largest producer, Saudi Arabia said that it would continue to ramp up production. Energy minister, Khalid Al-Falih told Reuters earlier this week that “We don’t believe any significant intervention in the market is necessary other than to allow the forces of supply and demand to do the work for us… [The] market is moving in the right direction [already],” dampening hopes for any production freeze talks.

Oil – Technical Outlook

Following up from last week’s technical report, Crude oil prices are seen trending lower after the formation of the inside bar on the weekly chart. The inverse head and shoulders pattern remains the main theme with the focus now on how low prices could fall. Short term support is seen at 43.42, but a confirmed close here could see the right shoulder failure of the pattern.

US Crude Oil (Rolling Contract) – Inverse Head and Shoulders Pattern
US Crude Oil (Rolling Contract) – Inverse Head and Shoulders Pattern

The 4-hour chart for Crude oil shows price falling after breaking down below the support at $46.75. Further downside could be expected towards $43.42, but this could potentially weaken the weekly chart’s inverse H&S pattern. In the near term, any pull backs to the decline could be limited to the $46.75 handle which is now most likely to come in as resistance. However, watch for a possible higher low being formed as prices gradually decline into the falling median line.

US Crude Oil (Rolling Contract) – Watch for test of support at $43.42 and resistance at $46.75
US Crude Oil (Rolling Contract) – Watch for test of support at $43.42 and resistance at $46.75
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