Crude oil recovers ahead of stock report

Commodities 5 minutes to read

Ole Hansen

Head of Commodity Strategy

Summary:  After yesterday's surprising API report the oil market's attention now turns to this afternoon's stock report from the EIA, which could provide another surprise.


Crude oil trades higher after the American Petroleum Institute (API) yesterday reported a surprise drop in US crude stocks of more than 4 million barrels, very different to the 3 million barrel increase expected by the EIA later today.

Adding to the support has been comments from the Minister of Energy of Saudi Arabia that the current production cut deal could be extended into the second half of the year. By making this comment the minister is playing it safe in order to make sure that the market refrains from selling oil in response to rising US shale oil production and before the price supportive tightness become visible in the data. In addition, Russia’s Energy Minister Alexander Novak has been on the wires stating that Russia has now cut output by close to 150,000 barrels/day and that they will reach their 228,000 barrels/day target by early April. 

So far global oil demand remains robust despite data pointing to a global economic slowdown. A slowdown which negatively impacts demand growth could be the trigger that requires an extension of the current deal. 

WTI crude oil has found support at $55/b after Monday’s Trump tweet helped trigger some profit taking. The trading range is currently defined by the rising wedge with resistance at $58.3/b and support at $53.8/b. A break below could spell trouble from a technical perspective and signal a return to support at $52/b followed by $50/b.
Source: Saxo Bank
The delayed Commitments of Traders reports from the CFTC are now just one week away from being up to date following the long delay that was caused by the December to January government shutdown. The latest report covering the week to February 12 was released last night and it highlights WTI crude oil’s struggle to attract fresh buyers amid record production. While net-buying of Brent began in early December WTI continued to be sold up until January 8 when the net-long had dropped to just 82k lots, a three-year low. 

In the preceding five weeks up until February 12 the net-long managed to climb by 54k lots. Out of this relatively small increase some 50k lots were attributed to short-covering while just  4k lots came from fresh buying. This despite having seen WTI crude oil rally by 25% between December 24 and February 12. 
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