Trading position (short-term; our opinion): Short positions (with a stop-loss order at $54 and the initial downside target at $45.80) are justified from the risk/reward perspective.
On Wednesday, black gold moved slightly higher after the EIA report showed that crude inventories declined for the first time in four weeks. This news together with a drop in distillate stockpiles pushed the commodity above $52 once again, but is it enough to trigger further improvement?
Although the Energy Information Administration reported that crude oil inventories fell by 1.8 million and distillate inventories dropped by 814,000 barrels in the week ended September 22, the report also showed that gasoline inventories rose by 1.1 million barrels, disappointing expectations for a decline of 921,000 barrels. Additionally, inventories at Cushing, Oklahoma, increased by 1.1 million barrels.
What’s more important, yesterday’s data showed that domestic production rose 0.4% and increased to the highest level since July 2015, which in our opinion, is a bearish development. As a reminder, increases in production triggered declines in the previous month, which increases the probability of similar action in the coming days.
The pro-bearish scenario is also reinforced by the technical picture of the commodity. Why? Firstly, black gold remains under the previously-broken long-term green line based on the August and November 2016 lows, which managed to stop oil bulls at the end of July. Secondly, the current position of the weekly and daily indicators suggests that reversal is just around the corner. Thirdly, the size of volume continues to raise doubts about the strength of the rally (during increases it is still smaller than during declines).
Taking all the above and the current situation in the oil-to-stocks ratio (we commented it more broadly in our Tuesday alert), we believe that the comments that we made on Wednesday remain up-to-date also today and if you haven’t had the chance to read our yesterday’s alert, we encourage you to do so today. We will provide you with a bigger update once we see more interesting developments on the crude oil market.
Thank you.
Nadia Simmons
Forex & Oil Trading Strategist
Przemyslaw Radomski, CFA
Founder, Editor-in-chief, Gold & Silver Fund Manager
Gold & Silver Trading Alerts
Forex Trading Alerts
Oil Investment Updates
Oil Trading Alerts
