Crude oil drifts lower ahead of weekly stock report Crude oil drifts lower ahead of weekly stock report Crude oil drifts lower ahead of weekly stock report

Crude oil drifts lower ahead of weekly stock report

Commodities 7 minutes to read
Ole Hansen

Head of Commodity Strategy

Summary:  Crude oil is jammed into a range despite several price-supportive developments. Focus now turns to this afternoon's EIA petroleum status report.


WTI and Brent crude oil both remain rangebound following a failed attempt to move higher. WTI crude oil found resistance at the $55.5/b level being the 38.2% Fibonacci retracement of the October to December sell-off. This level attracted enough selling to avoid a break higher towards the next potential target of $59.6/b. Supply fundamentals have increasingly been turning supportive in recent weeks but against this the market still worries about the yet-to-be-realised – if at all – impact on demand from weaker macroeconomic fundamentals. 

While the upside potential looks the greatest the market may still worry that disappointed longs my bail out following the failure to break higher. Much has been said and written about the head and shoulders formation on the charts and the failure for it to get triggered highlights the risk of technical trading patterns not working when they receive too much attention prior to the break. The key area of support remains $50/b.
Source: Saxo Bank
The Opec+ group of nations is in the process of, as agreed last year, cutting production in order to support the price following the +40% price collapse during last year's final quarter. While some uncertainty with regards to Russian efforts has been raised, Opec, led by Saudi Arabia, has led from the front with data from Bloomberg showing a 2.1 million barrels/day drop in production during the past two months. 
Adding to this is the political crisis in Venezuela where President Nicolas Maduro’s future remains the focus. Even the Russians have come to the conclusion that Maduro’s support is draining away following years of economic mismanagement. While US sanctions against PDVESA, the state owned oil company and life blood of Maduro’s regime, may speed up the process towards change, the short-term impact is being felt through reduced sales, especially to US refineries which are bared from sending the proceeds back to Caracas. 

Despite these oil-supportive developments the market remains stuck with the focus now turning to the ‘Weekly Petroleum Status Report’ from the US Energy Information Administration. Surveys ahead of today’s report at 15:30 GMT are in line the American Petroleum Institute with regard to crude oil and gasoline, both of which are expected to show an increase. Distillate stocks, meanwhile, are expected to show a drop in line with the seasonal behaviour. 
 
From a seasonal perspective, as seen below, crude oil stocks tend to rise and gasoline stocks fall as refineries cut demand and production as they head into seasonal maintenance period. There is, however, a major reason why this pattern may not be repeated, especially when looking at crude oil inventories. The continued rise in US exports and the recent cut in imports from Opec, most noticeably from Saudi Arabia, have created an additional layer of uncertainty the market has to deal with. 
Disclaimer

The Saxo Group entities each provide execution-only service and access to Analysis permitting a person to view and/or use content available on or via the website is not intended to and does not change or expand on this. Such access and use are at all times subject to (i) The Terms of Use; (ii) Full Disclaimer; (iii) The Risk Warning; (iv) the Rules of Engagement and (v) Notices applying to Saxo News & Research and/or its content in addition (where relevant) to the terms governing the use of hyperlinks on the website of a member of the Saxo Group by which access to Saxo News & Research is gained. Such content is therefore provided as no more than information. In particular no advice is intended to be provided or to be relied on as provided nor endorsed by any Saxo Group entity; nor is it to be construed as solicitation or an incentive provided to subscribe for or sell or purchase any financial instrument. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. As such no Saxo Group entity will have or be liable for any losses that you may sustain as a result of any investment decision made in reliance on information which is available on Saxo News & Research or as a result of the use of the Saxo News & Research. Orders given and trades effected are deemed intended to be given or effected for the account of the customer with the Saxo Group entity operating in the jurisdiction in which the customer resides and/or with whom the customer opened and maintains his/her trading account. Saxo News & Research does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Group and should not be construed as a record of our trading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication under relevant laws.

Please read our disclaimers:
- Notification on Non-Independent Investment Research (https://www.home.saxo/legal/niird/notification)
- Full disclaimer (https://www.home.saxo/en-hk/legal/disclaimer/saxo-disclaimer)

None of the information contained here constitutes an offer to purchase or sell a financial instrument, or to make any investments. Saxo does not take into account your personal investment objectives or financial situation and makes no representation and assumes no liability as to the accuracy or completeness of the information nor for any loss arising from any investment made in reliance of this presentation. Any opinions made are subject to change and may be personal to the author. These may not necessarily reflect the opinion of Saxo or its affiliates.

Saxo Capital Markets HK Limited
19th Floor
Shanghai Commercial Bank Tower
12 Queen’s Road Central
Hong Kong

Contact Saxo

Select region

Hong Kong S.A.R
Hong Kong S.A.R

Saxo Capital Markets HK Limited (“Saxo”) is a company authorised and regulated by the Securities and Futures Commission of Hong Kong. Saxo holds a Type 1 Regulated Activity (Dealing in Securities); Type 2 Regulated Activity (Dealing in Futures Contract); Type 3 Regulated Activity (Leveraged Foreign Exchange Trading); Type 4 Regulated Activity (Advising on Securities) and Type 9 Regulated Activity (Asset Management) licenses (CE No. AVD061). Registered address: 19th Floor, Shanghai Commercial Bank Tower, 12 Queen’s Road Central, Hong Kong.

Trading in financial instruments carries various risks, and is not suitable for all investors. Please seek expert advice, and always ensure that you fully understand these risks before trading. Trading in leveraged products may result in your losses exceeding your initial deposits. Saxo does not provide financial advice, any information available on this website is ‘general’ in nature and for informational purposes only. Saxo does not take into account an individual’s needs, objectives or financial situation. Please click here to view the relevant risk disclosure statements.

The Saxo trading platform has received numerous awards and recognition. For details of these awards and information on awards visit www.home.saxo/en-hk/about-us/awards.

The information or the products and services referred to on this site may be accessed worldwide, however is only intended for distribution to and use by recipients located in countries where such use does not constitute a violation of applicable legislation or regulations. Products and services offered on this website are not directed at, or intended for distribution to or use by, any person or entity residing in the United States and Japan. Please click here to view our full disclaimer.

Apple, iPad and iPhone are trademarks of Apple Inc., registered in the US and other countries. AppStore is a service mark of Apple Inc. Android is a trademark of Google Inc.