Crude oil prices reached an October 2018 high this week on Trump’s waiver decision. Both the API and EIA reports for the week ending April 19 were disappointing. However, it will take more than just a few stockpiled barrels for any significant drawdowns in prices to be seen.
API reported a huge build of 6.9 million barrels, as opposed to the 0.167 million barrel drawdown forecast.
US crude oil inventories increased by 5.479 million barrels compared to last week. Analysts missed expectations of 0.4 million barrels by a huge margin and diverged further away from the upbeat -1.396 million barrels stocks report for the week ending April 12.
Oil Recoils From $66.67 Downwards After API Report
The American Petroleum Institute released its weekly inventories report on Tuesday. It reported a massive build in oil stocks compared to last week’s draw of 3.096 million barrels and a draw of 1.82 million barrels in gasoline inventories. Note that demand for gasoline affects the oil price negatively. This moves prices of oil lower to $66.20 per barrel, but still up from $65.72 daily open.
Prices Slip Lower Amid Stocks Build, Gasoline Draw
The Energy Information Administration released its weekly inventories report on Wednesday. Although it reported a smaller build than API, oil prices closed on the negative as the EIA report is more significant for the markets.
Moreover, distillate stocks expectations of a 1.2 million barrels draw were missed massively. Despite an actual drop of 0.362 million barrels, the net change was negative for oil prices.
Last, but not least, gasoline stocks supported bears. The 1 million barrel draw forecast was surpassed by an extra 174 thousand barrels. Plus, from a technical perspective, a pull-back seemed very reasonable after Tuesday’s rally.
According to the EIA, crude oil inventories are at a 5-year average now.
Spare Capacity Sufficient to Offset Supply Gaps
The International Energy Agency (IEA) released a statement on Tuesday reporting that OPEC has now reached a spare capacity of 3.3 million barrels per day, citing high compliance. The autonomous organization added that 1 million comes from the UAE, Iraq, and Kuwait, whereas the majority of the supply is held by Saudi Arabia at 2.2 million barrels.
Will the Saudis And UAE Step-In To Compensate For Iranian Losses?
The prices of oil will now depend on Saudi Arabia and the UAE as the White House decided to drop waivers to big buyers of Iran crude. And that matters because Trump has stated that he counts on both to cover any supply shortages. But will the Saudis turn their back to the rest of the +OPEC? That will depend on how high oil prices can afford to go before they become painful in a global environment of fragile growth. Also, on how much Saudis are willing to lose leverage against other members.
Crude Oil Prices Depend on Geo-Flows
In view of the above and whilst oil prices hover around the October high, it seems possible that in the medium-term, prices move higher. On May 1st, Iranian output to big importers like China and India will most likely cease after the US waivers. And this going to affect demand.The daily chart highlights the strength of $66.67 per barrel. Both a resistance and an upper channel trendline, this confluence level could send bulls for a correction before any meaningful moves.
Prices could stall between 66.67 and 64.55 until further bias is provided, either by geopolitics, or China talks. However, we could expect a bearish pull-back nevertheless as both RSI and MACD show a bearish divergence.
On the lower timeframe, only the MACD provides a clear bearish signal. Despite a consolidation seeming more likely above $64.55, the MACD also shows a bullish divergence signal. And that makes the double top scenario, or even a breakout, also possible.