Brent and WTI Crude oil have recovered most of their recent losses, turning positive on the year once again.
The main reason behind the recovery is the latest announcement by Saudi Arabia, saying that they will propose to extend the production cut deal at the next OPEC meeting.
This time, both Crudes managed to react positively to these remarks, despite the fact that such option was on the table more than a month ago, since the prices began to drift lower.
US Crude Oil Inventories Sharp Decline
Yesterday, EIA released the weekly crude oil inventories from the US, which came in with a notable change, showing the biggest weekly decline in Crude Oil Inventories since December of last year.
The inventories showed a deficit of 2.2M barrel last week compared to a surplus of 1.6M the week before, even though the estimates were to post a deficit of 0.7M barrels.
This is also the first weekly decline in four weeks.
Why Did Oil Decline?
Despite the US Crude Oil Inventories data, both WTI and Brent Crude managed to decline back, after rising for six days in a row, ending the longest gaining stake since Mid-2016.
The decline was minimal, and both crudes remain near their highest level of the year. Moreover, the decline is most probably technical as both crudes are sitting on key resistance areas.
Moreover, it was already priced in a day before, since the API figures showed a possible deficit. Technical levels still matter in the coming days.
Where Crude Is Heading
If we look back to the history, every time Crude Oil declines sharply, OPEC and Non-OPEC members speak out and sent a clear message to the market about a possible extension.
This is exactly what used to happen in the US equities before the first rate hike. Whenever the indices used to decline sharply, the one or some of the Federal Reserve members sent out some remarks about a possible delay.
In the meantime, a period of stabilization is probably ahead of us, especially after the recent rebound for the past six sessions. In addition, there are no signs of a notable rally ahead as no fundamental catalyst is on the horizon anytime soon.
Both Brent and WTI Crude managed to rebound above their key moving averages including 50,100 and 200 DAY MA.
Both crudes are few dollars away from their yearly highs, which remains a key resistance for any rally ahead. Brent Crude key resistance remains at 57.11 while WTI Resistance stands at 54.50.
As long as both crudes are trading below those levels, we should not expect any significant rally anytime soon.
Moreover, the technical indicators are heavily overbought on most time frames. In addition, yesterday’s decline has led to a cross over to the downside on Stochastic Indicator, which would be a sign for a downward retracement ahead.
Yet, any decline is likely to be limited for the time being above the moving averages shown on the chart. Only a break below those MA’s would renew the downward outlook.