The response to the significant draw in crude stocks yesterday was significant in that it took price back above the 4 hour green band for the first time since mid April - the start of the current down move. But has it done enough? is it sustainable? is it the start of a new up-trend?
It is a little disturbing that the price has not since taken out the high achieved immediately following the EIA release, but, on the other hand, it has not fallen back either!
The general commentary I have seen all seem to contain a lot of bearish “ah but’s”, i.e.
ah but: US production is still increasing and further investment in additional production is faster than anywhere else in the world.
ah but: any extension of the OPEC cuts will be countered by increased production from both US and other non-agreement countries like Iran and Nigeria, who will grab market share from the likes of Saudi Arabia
ah but: global demand is falling below expectations due to poorer economic growth in OECD, India and China
ah but: US production is based on greater productivity efficiency than elsewhere and is expanding rapidly regardless of price
ah but: the US producers have locked in considerable amounts of future profits via hedging and will carry on increasing production even if prices fall further.
So the move is significant…but where is all the bullish talk?
Perhaps I should add here that at least Goldman Sachs and the Paris-based IEA are supporting the bullish view, claiming that US stocks do not give the whole picture and that globally stocks are reducing more significantly. Goldman points out that storage costs in the US are comparatively very low and are therefore the last to draw down and are a lagging indicator in the rebalancing process. Goldman also claims the sell off is more due to technical reasons than poor fundamentals.
One other positive comment points to the simultaneous draw in gasoline, which shows the crude draw is not just a swap of oil from one storage to another.
The 4 hour looks like this:
From a short-term trading perspective, yestday was a great day. Already some hours before the release the market had moved firmly positive on the 1H/15M combo chart (based on previous API release, probably) and gave plenty of opportunity to take a long position with a close stop. There was one scary spike down a few hours before the number but not enough to reach the stoploss level…and then the release paid out.