After more than three weeks of consecutive declines in Crude Oil prices, including Brent and West Texas Crude, it looks like that the time has come for a short-term retracement.
Both Crudes, Brent & WTI has been rising off its lows for five days, including today’s trading. However, such move is USD driven and is not connected with strong oil demand.
USD Factor
The US Dollar Index rally stalled at the end of last week as we noted in our previous reports. The stall came in due to further weakness in soft and hard US Data.
Yet, Janet Yellen, the Federal Reserve chairwoman, noted that rate hikes would be very gradual, unlikely to get back to pre-crisis levels.
Such comments pushed the US Dollar down, breaking below last week’s lows, reaching 96.10, which is the lowest level since November of last year.
Will USD Decline Keep Pushing Oil Higher?
Not exactly, the general outlook for both crudes remains bearish on most time frames, especially after they entered a bear market this month, declining by more than 20% from this year’s high.
Moreover, there are some signs of higher inventories coming in. Yesterday, the US API data showed a surprising build in inventories.
API Data showed an increase in US Crude Oil inventories by 851K, despite the fact that the estimates were to decline by -2.25M.
Moreover, Gasoline inventories showed a surprise build of 1.351M, while the estimates were pointing to no change.
US EIA Crude Oil Inventories Ahead
During the upcoming US Session today, the US EIA Crude Oil Inventories will be released at around 14:30 GMT+
The estimates point to a decline of -2.1M last week after declining by -2.5M the week before. If so, this would be the third weekly decline in inventories in a row.
However, there is room for a surprise, especially after the API data. Therefore, traders need to watch for such surprise, as it might be the catalyst for the next leg lower.
No Intervention By OPEC
Despite the recent notable decline in Crude Oil, OPEC and Non-OPEC members are on radio silence, with no new remarks or comments.
That fact is quite confusing; last time when crude oil used to decline by 4-6% OPEC and Non-OPEC members used to rush to the media to stop the decline, by increasing hopes for a better deal in the future.
With crude oil in the bear market and none of OPEC or Non-OPEC members showing up, I would keep my eyes and ears open for any sudden comments that might change the situation.
Levels To Watch
Brent Crude bounced off right from its November of 2016 support area around 44.30’s, which is technically normal.
Such rebound comes after almost a month of consecutive declines. However, the current rally is unlikely to last for long. The next immediate resistance stands at 46.60’s followed by 47.70’s which likely to hold.
On the downside view, a breakthrough the recent lows for whatever reason would clear the way for a deeper decline toward November lows at 43.50.
As for WTI Crude, is has the same story, WTI bounced off its August of 2016 lows, all the way to 44.0 earlier this morning.
However, such rally is likely to be limited. The first immediate resistance stands at yesterday’s highs at 44.40’s, while the most important level stands at 45.0, which represents its psychological resistance.
On the downside view, there is no significant support before 42.10, while a break through that support would clear the way for another low toward 41.10, which would be the lowest level since Mid-August of last year.
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