Market’s fear of a Middle Eastern war drove Crude Oil prices higher, even though latest data from the American Petroleum Institute numbers showed a lower implied demand, with commercial crude stocks rising 2.47 million barrels amidst expectations of a 250K decrease according to an analyst poll. The decrease in implied demand is not isolated within Crude, with Gasoline inventories falling by 1.13 million barrels vs an expected 1.5 million drop. Prices pushed up above 109 during US session, with Asian session doing one better, driving price to 112.56, the highest since 2011 May.
However, price has since pulled back quite significantly since the Asian high today. This cannot be regarded as unexpected, as prices of Oil has been going against global fundamentals for quite some time, as evident by the latest rally which goes against lower implied demand. If not for the Syrian scare, it is unlikely that Oil would be this high. Furthermore, the Syrian unrest may have been overplayed , and we could be seeing rationality entering the market yet again.
From a technical perspective, price is finding support from the rising Channel Top and the 110.0 round figure. Stochastic readings suggest that price may be able to head lower some more, but current Stoch levels have seen troughs back on 23rd 27th Aug. Hence it is still possible that stoch readings may be able to reverse here, in line with a bullish rebound scenario. However, if price break back into the rising channel, channel bottom will be a viable bearish target, also possible with Stoch levels still yet Oversold.
With Department of Energy inventory data coming out later, we can possibly use it to gauge whether the irrational fear is still in play. Should price manage to rally in spite of a lower implied demand, we could yet see prices pushing back to above 112 or potentially even higher. On the other hand, if price manage to breach Channel Bottom on a lower implied demand, this may imply that a longer-term reversal with bears demanding payback for all the unwarranted purchases earlier.