There are some occasions when one has to ask who produces the forecasts which are part and parcel of the fundamental news releases which are published on the daily economic calendars, and which set of darts and dartboard was being used for the latest set of numbers. Today’s crude oil inventories, delayed a day due to the President’s holiday on Monday, is a case in point. The forecast for today was for a draw in inventory at the Cushing hub – instead we saw the reverse, a build, and not a small build either, but one which exceeded last week’s build of 4.9m bbls by 2.8m bbls – hardly a near miss. Perhaps on this occasion the darts missed the dartboard completely, but joking aside this begs really the question of the validity or otherwise of such figures. And the market’s reaction to the data? Oil prices duly rallied recovering some of the losses from the gapped down open of the oil trading session, suggesting perhaps that the market too is now taking this data with a pinch of salt!
From a technical perspective, the long bear trend has finally reached a pause point, with many commentators now suggesting we have reached the bottom for oil. I do not subscribe to this view, and suggest that the current congestion phase is merely a pause, and not a buying climax. Indeed in many ways in this respect both gold and oil have yet to reach a bottom, and in the case of oil, the current congestion phase is very clearly defined. The resistance level is now firmly in place at $55.20 per barrel, as denoted by the double dotted line, and confirmed with the isolated pivot highs of early February. The floor of potential support is equally well defined at $48 per barrel, and once again also marked with two isolated pivot lows. Volume too is confirming the current price action with the rally of the 5th, 6th and 9th of February characterised with high volumes but narrow spreads, and wicks to the top of the candles. This weakness was duly confirmed, with a subsequent weak rally mirroring the volume profiles once again.
Moving forward the key is patience, and provided there is no fundamental shock to the system, or a change in policy from OPEC, then oil prices look set to continue to decline, and once the current floor of support is breached, then we are likely to see a retest of the low of late January of $44.35 per barrel.
By Anna Coulling