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Huge DOE drawdown but oil fails to rally

Summary:

  • The weekly DOE inventory release showed a drop of 8.9M
  • This was well below the expected (-3.0M) and prior (-6.5M) and similar to last night’s API
  • Oil.WTI volatile since the release

The main number on oil traders radars this week has shown a large decline in the DOE inventory with a print of -8.9M just released. This reading marked the 7th consecutive weekly decline and the 9th in the past ten - the one positive print was a measly +0.1M.

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 After a strong start to the year the DOE inventories have declined significantly in recent weeks is now below the equivalent point in time from last year: Source: XTB Macrobond 

However the immediate reaction seen in the oil price was to the downside with Oil WTI falling by around 50 ticks since the data was published. The reasons for this are twofold; firstly in the context of Tuesday’s API reading today’s number is fairly similar and secondly several components of the report failed to support the headline reading.

Last night saw the API inventory record a decline of 9.2M and this may well have lowered market expectations. Consensus forecasts from a Bloomberg survey conducted prior to the API number expected a drop of 3.0M but it is likely that market participants revised down their own views after the API. 

As for the individual components of today’s report  several of them failed to support the headline read:

Distillate inventory change: +0.7M vs -0.3M exp and -1.8M prior

Cushing inventory change: +0.7M vs +0.6M prior

Gasoline inventory change: 0.0M vs -0.5M exp and 3.5M prior.

As you can see above the distillate and cushing numbers were higher than both the expected and the prior and whilst the gasoline figure declined on the previous it was still higher than consensus forecasts. 

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Oil.WTI has been typically volatile since the release, falling to its lowest level of the day before bouncing from 47.60.

On a longer term chart the market remains in a series of lower highs and lower lows. Until 50.42 is traded above then this sequence will remain in tact. 45.50 and 42.20 are level to watch on the downside for possible support. On Monday price broke down through some short-term support at 48.40 and this may now serve as the first line of resistance. 

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 Oil.WTI remains in a downtrend marked by a series of lower highs and lower lows. Source: xStation

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