WTI Playing Catch Up
???? Today’s Spotlight Market
Crude Oil prices have benefited from a more optimistic outlook on the US and Eurozone economies from traders. After rising sharply in recent sessions, some traders may be a bit more guarded ahead of this afternoon’s API and tomorrow’s EIA data. Both reports are expected to show an increase in Crude Oil stockpiles in the US. The large inventory levels in the US have been the principle reason for the disconnect between WTI and other varieties of Crude Oil. Some traders are banking on destocking by year’s end, as new takeaway avenues like the Gulf Coast Pipeline Project are completed. This could result in the WTI/Brent spread narrowing to less than $5 by year’s end.
???? Fundamentals
Crude Oil futures have rallied almost $8 from the recent low close on the 17th, as traders appear to have been in “risk on” mode. Traders seem to be undeterred by weaker GDP data and large supplies.
Tomorrow’s EIA data is expected to show a Crude Oil inventory increase of 1.1 million barrels. If accurate, the 389.7 million barrel inventory figure would be the largest since July of 1990. Currently, lackluster demand suggests that it could take some time to work down inventory levels.
One of the reasons for the stockpile of Crude Oil in Cushing, OK is the lack of takeaway capacity from the hub. Many market observers are expecting new pipelines across the Midwest to help work down excess stocks of petroleum from storage facilities by year’s end. This suggests that the rise in WTI may be less about Crude Oil optimism and more about WTI catching up to Brent prices.
The spread between the two grades closed at 9.31 yesterday, the lowest level since June 29th of last year. The spread can be seen as having stout technical support near the 7.50 mark. Some traders may wish to keep an eye on how the spread behaves if/when that level is tested.
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Technical Notes
Turning to the chart, we see the June Crude Oil contract coming up on resistance at the 95.00 level. If broken, the next upside test for the market would come at 97.50.
Despite the recent rally, which saw prices climb almost $8 in roughly a week and a half, the RSI is currently at a neutral 50 reading. The recent closes above the 20-day moving average suggest that a near-term low may be in place. This has created negative divergence between price and RSI, hinting that the rally could be running out of steam.
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