U.S. West Texas Intermediate and international-benchmark Brent crude oil futures are trading lower on Thursday after posting dramatic technical closing price reversal tops on Wednesday. The potentially bearish chart pattern was triggered by a government report that showed an unexpected build in U.S. crude inventories. The news caught long investors by surprise as they had been looking for a small drawdown.
The chart pattern may be short-term bearish, but it’s not a trend-changer. It usually indicates the selling is greater-than-the-buying at current price levels. It often leads to a 2 to 3 correction. The fundamentals are too strong to change the trend, which suggests investors may be using the report as an excuse to book profits after a strong four day rally. If there is a short-term correction into a value area then look for buyers to re-emerge since the market is in a strong uptrend.
U.S. Energy Information Administration Weekly Inventories Report
According to the U.S. Energy Information Administration (EIA), U.S. crude oil inventory rose 7.2 million barrels for the week-ending March 29. Traders were looking for a 700,000 barrel drawdown.
The EIA also reported that gasoline inventories fell 1.8 million barrels during the week-ending March 29. Gasoline production averaged 9.8 million bpd, compared with 9.7 million barrels a week earlier.
The weekly report also showed that distillate fuels fell by 2 million barrels versus a draw of 2.1 million barrels a week earlier. Production of distillate fuel averaged 4.9 million barrels per day last week, compared with 4.9 million bpd in the prior week.
Finally, refineries processed 15.8 million bpd of crude in the week to March 29, the EIA report showed.
The Commodity Futures Trading Commission (CFTC) said money managers boosted their net long position in WTI by 29 million barrels and increased their net long position in Brent by 13 million barrels in the week-ending March 26.
We’re likely to see a short-term setback in crude oil prices because the EIA report caught many longs by surprised and since the hedge funds follow The Herd Theory, when one sells, they’ll all start selling. The down move is likely to be short-lived because prices continue to be underpinned by tightening global supply because of the highly successful OPEC-led production cuts and U.S. sanctions against Iran and Venezuela. Additionally, signs of demand are also providing some support. Bullish conditions could improve further if a U.S.-China trade deal is announced. This is likely to spike prices higher.