Thursday, September 1, 2016
Crude Oil futures got off to a very hot start in August, but the market sharply turned around and ended the month on a sour note after prices were unable to test previous highs. Last week's comments at Jackson Hole by Fed Chairwoman Janet Yellen were far more hawkish than many had expected. Normally, policymakers release statements blander than a cup of plain Greek yogurt at the meeting, so the tone caught some traders off guard. Oil has also been facing some headwinds on the supply front, as well as the currency markets.
One of the major reasons for Crude Oil faltering has been the oversupply and the global economy's inability to work down stocks. Yesterday's EIA inventory data showed inventory levels rising by 2.3 million barrels last week, bringing total inventory levels to 525.9 million barrels, which the EIA characterized as "historically high levels for this time of year." Distillate inventories rose by 1.496 million barrels on the week. Gasoline inventories helped push Oil prices lower after the EIA reported a decline of 691,000 barrels on the week. Many traders were looking for a 1.157 million barrel decline. There is some speculation that Saudi Arabia may finally see eye to eye with fellow OPEC members and try to bolster prices due to the upcoming Saudi Aramco IPO. OPEC meets late this month in Algeria, and there has been some suggestion from traders that the group may be able to reach some sort of compromise to curb production after Iran said it would join the meeting. This is, of course, purely speculation. Last week, the Saudi Energy Minister stated that he does not believe that any significant intervention is needed in the Crude Oil market. The US Dollar Index has put some pressure on Oil prices since last week. The Dollar Index remains weak technically, so the impact on Oil prices may be somewhat limited.
Turning to the chart, we see the October Crude Oil contract trading sharply lower after the spinning top candlestick on August 19. The inability of the Oil market to break the 50.00 mark and test June highs can be seen as a technical letdown. The October contract was at overbought levels on the RSI at the time the market reversed course, but the oscillator is now back in neutral territory.
Rob Kurzatkowski, Senior Commodity Analyst