Oil brushes off inventories

Oil survives an inventory scare

Oil showed remarkable resilience overnight as official US Crude Inventories exploded higher to a shocking 15.20 million barrels, a number last seen in the height of the Covid-19 global shutdown earlier this year. Distillates and Gasoline Stocks all rose massively to 5.2 and 4.2 million barrels, respectively. The chief culprits appear to be export bottlenecks and falling domestic demand as Covid-19 curtails movement in America.

In other times, numbers such as the above would have seen oil prices drop by 10% or more. Instead, both contracts fell by only around one dollar a barrel, before regaining all those losses. Brent crude finishing 0.45% higher at USD49.05 a barrel, and WTI finishing 0.20% higher at USD45.70. In Asia, oil has advanced modestly again, both contracts adding a further 10 cents a barrel.

The price action overnight must be respected, coming as it does against impending OPEC+ production increases and a market that was already heavily long oil and distillate futures. It is clear that the vaccine-led global recovery narrative is what is powering oil markets, which are ignoring a stimulus stand-off in Washington DC, and a US dollar that has quietly ground higher over the past week. With Covid-19 vaccinations starting around in some countries this week and next, that narrative will continue to underpin energy markets to the exclusion of all else.

Brent crude has support at USD48.40 a barrel, the overnight lows, which followed the USD47.00 a barrel region. Only a weekly close below the latter would suggest market dynamics have structurally changed. In all likelihood, Brent is gathering strength to challenge resistance at USD50.00 a barrel which will open further gains to the USD54.00 a barrel region.

WTI has support at its overnight low at USD45.00 a barrel. That is followed by USD44.00 a barrel, with only a weekly close below delaying the bullish outlook. Initial resistance is at USD46.70 a barrel which opens the path to a test of the USD49.00/50.00 a barrel zone.

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

Jeffrey Halley

Jeffrey Halley

Senior Market Analyst - Asia Pacific
With more than 30 years of FX experience – from spot/margin trading and NDFs through to currency options and futures – Jeffrey Halley is OANDA’s senior market analyst for Asia Pacific, responsible for providing timely and relevant macro analysis covering a wide range of asset classes. He has previously worked with leading institutions such as Saxo Capital Markets, DynexCorp Currency Portfolio Management, IG, IFX, Fimat Internationale Banque, HSBC and Barclays. A highly sought-after analyst, Jeffrey has appeared on a wide range of global news channels including Bloomberg, BBC, Reuters, CNBC, MSN, Sky TV, Channel News Asia and the New York Times. He was born in New Zealand and holds an MBA from the Cass Business School.
Jeffrey Halley
Jeffrey Halley

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