WTI Rose For a Fifth Straight Day as U.S. Inventories Drop

Crude rebounded for a fifth straight day and recovered all losses from last week. It surged on Wednesday 2.76 percent or $1.23 per barrel, to end at $44.694 as concern over a supply glut eases. Oil slumped into a bear market last week on concerns that physical oversupply and increases in U.S. inventories would undermine a deal of output cuts from the OPEC (Organization of Petroleum Exporting Countries). A data from the Energy Information Administration showed that U.S. crude inventories remain more than 100 million barrels above the five-year seasonal average, which drove oil prices down. According to the EIA, inventories that remained stubbornly high dropped 894,000 barrels last week, with Oklahoma inventories (the largest delivery stock in US) falling for the sixth straight week, while U.S. crude oil stockpiles rose by 118,000 barrels, the amount of oil held at the Cushing hub fell for the sixth week in a row. Declined U.S. gasoline stockpiles boosted futures (5.5 percent) over the past five sessions on Wednesday. “The positioning clearly says there is room for a fairly abrupt reversal,” said Mike Wittner, head of oil market research at Societe Generale SA, adding that this will depend on signs the market is re-balancing. “The gross short positions are very big. Sentiment is overwhelmingly bearish right now, but things can turn around in a hurry.” Technically in the near term oil prices is moving in a descending price channel, which is depicted in blue below. After touching a support level of the lower channel line the price got a sharp bounce and now is testing the 20-day moving average, which is seen as a key resistance. In the event of crude prices edge higher to break the MA20, there is a large room for traders to see further increases towards MA60. Alternatively if prices reverse lower impeded by the MA20, it will decline further to test Jun 21^st’s low of 41.822. If we see the longer term’s outlook, it is still staying in an upper upward price channel after finding a median line support. A brighter future can be seen if it is not breaking lower to this support line with rising Relative Strength Index (RSI) which is now standing around at median level.

Chart 1: WTICOUSD Daily