Following the publication of the weekly EIA oil inventories report, WTI crude prices initially fell. The headline drawdown of 5.73 million barrels in US crude stockpiles for the week ending October 13 was not as great as 7.1 million reported by the API the day before. In addition, stocks of gasoline and distillates rose by 1.91 and 0.52 million barrels respectively, with the latter missing expectations of a 1.5 million barrel drawdown. But crude oil production slumped, presumably because of the impact of the recent hurricanes. Refineries meanwhile operated at only 84.5% of their operable capacity. This was the lowest seasonally-adjusted refinery utilization rate since 2011, pointing to weaker demand.
Overall though the oil report was mixed, so I think there is a good possibility oil prices will bounce back as the focus returns to the OPEC and ongoing concerns over supply restrictions in the Kurdish region of Iraq. The OPEC’s ongoing efforts with a few non-OPEC countries such as Russia to reduce global crude stocks is working and the market is rapidly tightening. That’s according to BP’s chief executive Bob Dudley. “Stock levels are just heading down, for both crude and products. So it does seem we’re heading towards the targets that were set by OPEC.”
Meanwhile, from a technical standpoint, the chart of WTI continues to paint a bullish picture. This is highlighted among other things by a series of higher lows, the break of a downtrend and by price moving above key moving averages. As the slope of the long-term 50- and 200-day moving averages are also starting to turn positive, this is objectively telling us that oil prices are no longer in a long-term downtrend. In the short-term, WTI faces resistance around the $52.30 level, where it has struggled on numerous occasions in recent times. With the underlying trend being bullish, I think it may be a matter of time before WTI clears this hurdle. If and when it breaks away from this level, then we could see the onset of another rally towards the Fibonacci extension levels at $53.80/5 (127.2%) and $55.10/20 (161.8%), with the latter also being the January high. While the bullish outlook wouldn’t materially change until and unless WTI creates a lower low below $49.10, we would nonetheless turn cautious on our bullish view in the event price breaks below the $51.10-$51.40 short-term support range.