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XTB TRADEBEAT

Another large DOE draw fails to support crude

Summary:

  • Weekly DOE inventories drop by 5.4M barrels
  • Print lower than expected and prior but In line with API
  • Oil.WTI has reacted negatively and fallen back near its 1-month low 

A 9th successive drop in the weekly DOE inventory release has failed to cause any immediate upside in the price of crude, with Oil.WTI falling back below the $46 handle and close to its lowest level in over a month.

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 The recent streak of drawdowns in the DOE release has seen inventories fall back below their equivalent last year. Source: XTB Macrobond

Given that the year began with a higher than usual base, we can normalise the data for more easy comparison to prior years. Below is a chart showing how inventories have changed this year compared to the previous onves, with the beginning of the year indexed to 100. 

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 From an equal starting point the declines seen in inventories this year are in fact the greatest out of any in the past 6 years. Source: XTB Macrobond

A print of -5.4M was below the consensus forecast of -1.8M and the prior reading of -3.3M but broadly in line with last night’s API release of -5.8M. Whilst the continued declines seen in the headline number could be seen as supportive of the oil price, a closer look at some of the components of the report is not as positive for Oil bulls. 

For instance, the Cusing number rose to +0.7M from -0.5M prior and the Gasoline release increased to 0.0M from -1.2M last week. In addition, US crude production has risen once more, albeit marginally, to 9.53M BPD from 9.52M BPD.

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 US oil production ticked higher once more (albeit by just 2k barrels per day). Production is now close to its highest level in the past 32 months. Source: XTB Macrobond 

Overall the release could be described as fairly neutral for the price of oil and with the current trend being lower there could be further declines ahead. The 8 and 21 period EMAs have recently printed a negative cross and whilst price remains below 47.20 then the bears appear to be in control of the tape. A break below 45.40 would be a clear negative development and pave the way for a retest of the 2017 lows around the $42 handle.

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 Oil.WTI remains in a downtrend and today’s data offers little to suggest this will change anytime soon. Source: xStation

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