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Market alert: oil prices poised to resume climb after EIA data

Crude oil prices are moderating after a multi-day rally; EIA inventory data expected to show stockpile build and prices fall to the psychologically important 100 level.

WTI crude oil and Brent oil prices are slightly lower in Asia-Pacific trading, signaling the potential end of a multi-day rally that sent WTI back above the $100 per barrel mark. A pullback in the US dollar has provided a tailwind to prices, reducing the costs of foreign buyers to transact in the USD-denominated commodity. However, the US dollar is softer, and equity indexes across APAC are rising.

Traders are likely scaling out of oil ahead of tonight’s US inventory report from the Energy Information Administration (EIA). Traders expect a 748k barrel build in crude oil inventories for the week ending July 15, according to a Bloomberg survey. Gasoline and distillate stocks are seen rising as well. The American Petroleum Institute reported a 1.86 million barrel increase for the week ending July 15, beating a 333k barrel build that analysts expected.

A larger-than-expected increase may weigh on prices, but the downside is likely limited as storage levels remain extremely tight. Stockpiles at Cushing, Oklahoma—the primary WTI delivery and pricing point—are near critically low levels, with only 21.6 million barrels in storage. The storage hub needs around 20 million barrels for normal operations, which, if reached, could send prices much higher. Overseas demand has eased in recent weeks, which should help stem the flow of oil going to the Gulf Coast for shipment.

However, overall demand remains healthy. That is evidenced by the strength in the WTI prompt spread, which measures the price difference between the current and next month’s contract (see chart below). With storage levels near historically low levels, prices likely have limited room to fall even if tonight’s EIA data turns out to be bearish. That said, prices may rally if the data shows a surprise drop in stockpiles, given the fundamental backdrop.

WTI crude oil technical outlook

WTI prices are trading just above the psychologically important 100 handle after prices fell short of climbing above the 20-day Simple Moving Average (SMA). A drop below 100 could push prices lower to retest the 200-day SMA, which supported prices last week. MACD made a cross above its signal line, a bullish sign, although the RSI oscillator failed to climb above its 50 mid-point.

WTI crude oil daily chart

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This information has been prepared by IG, a trading name of IG Australia Pty Ltd. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients.

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