...The downside for now seems to have stalled around the 200 sma, which apparently is a benchmark level widely looked at. However, based on the charts, there is no evidence yet to suggest this down move is over, rather we are at a typical pause session awaiting fresh input and I see possible upside limits around 50.20 and 50.75 for short term trading
After yesterday's EIA data, the above-mentioned scenario seems still to be valid. We just fell short of the 50.20 level with a high of 50.17, and the daily 200 sma still seems to be holding.....but the upmove was very short-lived in spite of the huge drop in crude stocks and slumped back to the same levels we were at before the release:
There are some fascinating scenarios concerning where we go from here. It would be short-sighted to only look at the crude storage situation because the oil market is a process and it takes many months for oil to pass through it from bedrock to gas station:
oil production=>transport=>crude storage=>refinery=>gasoline storage=>distribution=> gas station=>consumer
Yesterday's EIA data showed a large drop in crude inventories but also a large increase in gasoline inventories. This is surely normal as the refineries end their seasonal maintenance and build stocks for the traditional summer driving period....but there are unusual situations currently at each of these points in the process:
Production: Will OPEC and the other 11 non-OPEC producer countries extend their productions cuts in their May meeting? by how much? Will the increasing US shale oil production continue to counter the impact of these cuts?
Crude stocks Whilst global crude stocks have generally dropped a little, they are still well above the 5-year average level that OPEC wants - and even if that level were to be achieved, would it also increase prices or just produce better stability at these low price levels?
Refining: Whilst it is normal for refineries to step up their processing at this time of year, the US refinery capacity is already at record highs above 90% (at least, So I have read). So unless there is significant increase in consumer activity out one end, there will be a slowdown in draws from crude stocks at the other.
Consumption: There are reports that US gas station sales are currently below last year's levels. There is also speculation that the increase in low-consumption and electric vehicles will already significantly reduce demand. This, together with reduced consumption from more efficient commercial vehicles, and combined with an increase in much cheaper wind and solar energy, will tend to de-couple the link between overall energy demand and the demand specifically for oil products. In addition, there are downgrades in overall economic growth in many places.
All in all, there are many issues right now in addition to the basic supply v. demand equation.
On balance, the charts are still negative, but showing signs more of stagnation and uncertainly that any specific trend and this is also noticeable in a widening of spreads, both during last night's quiet period and again this morning.
My own strategy at present is to grab quick moves off the 15min chart as and when it makes sense with respect to the 1 Hour. Yesterday offered 2 reasonable intraday sells and today also looks more prone to the downside - but I am waiting for the NY session.....