Crude oil rises on another sharp inventories drawdown, geopolitical uncertainty

Crude oil is higher today with Brent currently trading at $107.80 and WTI at just shy of $103.00. Brent has risen on continued geopolitical uncertainty and concerns over further sanctions on Russia. A day after the pro-Russian rebels handed over the black boxes of the crashed Malaysia Airlines flight MH17, today they have downed two Ukrainian warplanes in the east of Ukraine. On top of this, there’s been no let-up in the Gaza conflict between the Israeli army and Hamas. In the US, oil speculators are pushing prices higher on brighter demand prospects after crude processing reached a record level in mid-July. As a result, oil inventories have fallen sharply recently and last week they declined by an additional 4 million barrels. Although this latest drawdown was not as sharp as the prior week’s 7.5 million, it was nonetheless double the expected reduction volume (2 million). What’s more, stocks at Cushing, the delivery hub for WTI, decreased again by 1.45 million barrels after dropping 0.65 million the previous week. But gasoline inventories increased sharply last week by 3.4 million barrels and this took the shine off an otherwise bullish oil report. With US oil production continuing to rise and processing nearing its seasonal peak, further sharp falls in crude stocks look unlikely. As a result, WTI prices may head lower from these levels.

From a technical point of view, the key support to watch is a $101.50 – a break below this could lead to a drop towards the $99 handle again. On the upside, resistance meets the 50-day SMA at around $103.80/90. A potential break could see the price of US oil hit the $105 mark at some point in the near future. Brent has been stuck inside a tight range over the past several days. The key support to watch is around $106.80 – if this breaks then we could easily see another run towards this month’s low of around $104.50. Resistance comes in between $108.60 and $108.90. The upper end of this range ties in with 200-day SMA and also the 38.2% Fibonacci retracement level of the down move from the June peak. Thus a break above that area could lead to some sharp gains as it would also force many of the existing sellers to exit their trades.

Figure 1:

Source: FOREX.com. Please note this product is not available to US clients.

Figure 2:

Source: FOREX.com. Please note this product is not available to US clients.