Thursday, May 1, 2014
Crude Oil futures are trading south of the $100 level after the EIA reported another weekly inventory increase. In addition to bearish inventory data, Oil felt the pinch of decreased liquidity from the Federal Reserve and bearish Chinese manufacturing data. It was a perfect storm of negative news for Crude Oil traders. That being said, it may be a stretch to say that prices are set to reverse course. This is because the wildcard is the Ukrainian crisis, which could continue to act as support for prices. Russian President Vladimir Putin and the West are playing a game of who will blink first, which may result in further sanctions. What has Oil traders concerned is the possibility of Russia retaliating by trimming or cutting off of energy supplies.
The EIA reported that US Crude Oil inventories rose by 1.7 million barrels for the week, to 399.4 million barrels. This is the largest inventory level since the EIA began keeping tabs on energy stocks in 1982. While overall stockpiles rose, Cushing, OK supplies shank by 612,000 barrels, continuing the trend for the hub. While the Cushing drawdown could be seen as bullish, it does not erase the fact that the US remains extremely well supplied. In China, the Purchasing Managers' Index was at 50.4, according to the National Bureau of Statistics and China Federation of Logistics and Purchasing. This was short of the analyst estimate of 50.5, continuing the trend of soft Chinese economic data. The Federal Reserve cut its asset purchases by another $10 billion a month to $45 billion, which is what the market was expecting. While it is encouraging that household spending had kicked up, there are traders out that that are skeptical that the recovery can continue if the Fed ends quantitative easing by the end of 2014.
Turning to the chart, we see the June Crude Oil contract baking through the $100 mark in early trading. This not only puts Oil prices below support at $100, but is also below the 20-, 50- and 100-day moving averages if prices close where they are overnight. The recent weakness could be attributed to technically overbought levels on the RSI, but the oscillator is now showing oversold conditions.
Rob Kurzatkowski, Senior Commodity Analyst