Market Analysis

Crude Oil: Potentially developing a double bottom ahead of EIA crude inventories

According to analysts’ the market remains to weigh concerns surrounding potential supply shortages from imminent US sanctions on Iran, the third-largest oil producer in the Organization of the Petroleum Exporting Countries (OPEC). The sanctions, due to come into force November 4th, after US President Donald Trump pulled out of the Iran nuclear deal earlier this year.

Also pending on oil prices are the concerns about trade wars that clouded the fuel demand outlook.

Since 1929, the American Petroleum Institute (API) Weekly Statistical Bulletin (WSB) has reported total US and regional crude inventories and data related to refinery operations, as well as the production, imports, and inventories of the four major petroleum products, which represent more than 80% of total refinery production.

American Petroleum Institute (API) reported yesterday its weekly statistical bulletin (WSB), which revealed a drop to 5.70 million in crude oil stocks compared to last week number of 9.88 million barrels. This decline of 4.18 million barrels may suggest an increase in demand, which might give some support to the oil price or at least halt the current downward move.

In the meantime, markets remain cautious on the US Energy Information Administration (EIA) report on crude inventories due today, following last week’s number of 6.346 million barrels that almost double the amount analysts had forecast. Today, we will have the release of EIA latest survey the report and is expected to show a drop in crude oil stocks with estimates at 4.110 million barrels.

The API data is often seen as a prelude to the EIA data, as it is released the evening before the EIA report. There is definitely a relationship between the two data sets: 80% of the time the data is directionally aligned.

Meanwhile, according to the last data from energy Services Company Baker Hughes released on October 26th, the average number of US oil-drilling rigs rose to 875 comparing to the 873 released on October 19th, the highest since March 2015. This rig count is an important business indicator for the oil drilling industry and acts as a leading indicator of demand for oil products.

Since the beginning of 2018 until last Tuesday close, the crude oil remains positive with a gain of more than 10.0% but since the start of October, the currency pair dropped in excess of 9.5%. Nonetheless, the weekly outlook remains with a loss of almost 1.80% and on the daily basis closed relative red with 0.50% loss. Furthermore, crude oil is in a distribution phase since late-October.

On yesterday session, crude oil went back and forward without any clear direction nonetheless closed in the middle of the daily range, in addition, managed to close within Mondays’ range, which suggests being clearly neutral, neither side is showing control.

The stochastic is showing an oversold market but is displaying lack of momentum.

After making a new year-to-date high at 76.88 in early October, the commodity began a nosedive following lower highs and lower lows that indicates a well-established bearish trend. The slide of 4.18 million barrels reported yesterday by the weekly statistical bulletin helped the crude oil recovery from its initial losses. The current price action suggests the development of a double bottom pattern, which is a technical analysis pattern that defines a change in trend and a momentum reversal from prior leading price action, in this case from bearish to a bullish momentum. So crude oil maybe setting the stage for an upward correction that might run up to the 50-day moving average.


Watch out this week:

On Friday at 13:00 GMT (8:00 AM ET) the Baker Hughes will release weekly data on the US oil rig count. An increase in the oil rig count is seen as having a potential negative impact on crude oil price because it is perceived as a likely increase in crude oil inventories if demand does not pick up.

LCrude is a CFD written over Light Crude futures.


LCrude Dec ’18 Daily Candlestick Chart

LCrude Dec ’18 Daily Candlestick Chart


Written by Hugo O’Neill, External Analyst


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