Oil drops for the fifth straight day after U.S. inventories rise (With Trading Strategy)

Oil prices dropped for a fifth straight day on Thursday after official data showed a sustained rise in U.S. crude and fuel inventories, while the ever-present pandemic clouded the demand outlook.

West Texas Intermediate crude fell 0.67% to $63.911 per barrel, and Brent crude was down 0.78% at $66.957 a barrel by 15:50(GMT+8) on Thursday.

Government data on Wednesday showed U.S. crude inventories have risen for four straight weeks after refineries in the south were forced to shut due to severe cold weather. An industry report estimating a 1 million barrel-drop had raised hopes the run of gains might have stopped.

“Even with the continued recovery in refinery activity, U.S. crude stocks rose last week,” Capital Economics said in a client note.

“We suspect that stocks will fall soon as refinery activity rises further and crude production holds steady,” Capital said, noting that refineries are “rapidly coming back online.”

U.S. crude inventories increased by 2.4 million barrels last week, an industry report on Tuesday estimated a 1 million barrel-decline. Analysts had on average expected an increase of 3 million barrels.

“U.S. inventory numbers from the EIA were more bearish than the API numbers from the previous day suggested,” ING Economics said, noting the stocks totalled more than 500 million barrels for the first time this year.

“Refiners continue to bring back capacity after the freezing conditions in February,” ING said, adding that throughput rates are still below the average before the cold snap.

Stocks of gasoline and diesel increased against expectations among analysts for a decline.

On the demand front, a number of European countries have halted use of AstraZeneca’s COVID-19 vaccine because of concerns about possible side effects.

Germany is also seeing a rise in coronavirus cases, while Italy plans a national lockdown for Easter lockdown and France will introduce tougher restrictions.

“Oil demand will likely never catch up with its pre-pandemic trajectory,” the Paris-based IEA said Wednesday in its annual medium-term outlook. “There may be no return to ‘normal’ for the oil market in the post-Covid era.”

Global oil demand won’t return to pre-pandemic levels until 2023, and growth will be subdued thereafter amid new working habits and a shift away from fossil fuels, the International Energy Agency said.

“Our data and analysis suggest otherwise,” IEA said in its monthly report. “There is more than enough oil in tanks and under the ground to keep global oil markets adequately supplied.”

The Organization of Petroleum Exporting Countries and its allies held 9.3 million barrels-a-day of spare production capacity last month as a result of cutbacks made during the pandemic, which could be quickly deployed if markets become tight, the IEA said.

Furthermore, oil inventories in developed countries stood at a “lofty” 110 million barrels above last year’s levels as of January, and can be readily tapped as needed, according to the agency.

“Oil inventories still look ample compared with historical levels,” said the IEA, which advises most major economies. “On top of the stock cushion, a hefty amount of spare production capacity has built up as a result of OPEC+ supply curbs.”

If OPEC+ doesn’t go ahead with scheduled supply increases in coming months, the IEA’s data indicate that inventory declines in the second half of the year will be steeper.

World oil demand proved stronger than expected at the start of the year, “boosted by colder weather and improved industrial activity in the U.S. and elsewhere,” according to the report.

The longer-term picture isn’t so robust.

Trading Strategy (source: Trading Central)

Pivot: 64.60

Our preference: short positions below 64.60 with targets at 63.60 & 63.10 in extension.

Alternative scenario: above 64.60 look for further upside with 64.95 & 65.30 as targets.

Comment: as long as the resistance at 64.60 is not surpassed, the risk of the break below 63.60 remains high.

Supports and resistances:

65.30

64.95

64.60

64.29 Last

63.60

63.10

62.60

Pivot: 68.00

Our preference: short positions below 68.00 with targets at 66.95 & 66.50 in extension.

Alternative scenario: above 68.00 look for further upside with 68.40 & 68.90 as targets.

Comment: as long as the resistance at 68.00 is not surpassed, the risk of the break below 66.95 remains high.

Supports and resistances:

68.90

68.40

68.00

67.69 Last

66.95

66.50

66.00

Guideline for Trading Central strategy 

Trend chart reading guideline

1. First look at the time period in the upper left corner of the chart: ·30MIN and 1H chart shows the trading suggestions for intraday ·Daily chart shows the market trend analysis in next 2-3 days

2. The blue horizontal line on the chart marks the pivot: pivot indicates the reversal of the market. When the price is above the pivot, it indicates an upward trend, when the price is below the pivot , it indicates a downward trend. When the price breaks through the pivot, the trend is reversed.

3. The red and blue thin curves in the Candlestick chart chart are technical indicators: Red line is MA20+Bollinger bands, Blue line is MA50. under the Candlestick chart chart are also the technical indicators: Blue line is RSI, Red line is 9MA;

4. The green horizontal line is the resistance level for a price increase, and is also the profit target for long orders; the red horizontal line is the support level for a price decrease, and is also the profit target for short orders.

How to use TC strategy？

1.[Pivot] is the reversal line of the market trend. When the price up the pivot line which means in Bullish, you can open a long position or Buy. on the contrary, when the price under pivot line which means in bearish. You ‘d better make short positions or Sell. 

2. [our preference] is the main trading suggestion for your reference. You can exit your trading refer to this target or close positions before it.

3. [Alternative scenario] is the plan B for your reference. 

4. [Comment] is the technical analysis of market trends and technical support for trading strategies. 

5. [Supports and resistance] Supports are levels where the price tend to find support as it falls.

Resistances are levels where the price tend to find resistance as it rises. So, exit before the trend reverse.