U.S. Domestic Oil Demand Propels Crude; While Crude Moves To Retest The Bearish Flag

Crude oil prices are climbing ladder post a massive decline in the prices amid delayed tariff on Chinese goods and over a slight increase in demand from the United States.

The Brent oil futures rose closed green for three consecutive trading session, and the prices soared from the level of US$55.88 (Day’s low on 7 August 2019) to the level of US$61.49 (Day’s high on 13 August 2019), an increase of over 10 per cent.

Likewise, the prices of West Texas Intermediate (or WTI) futures soared from the level of US$50.52 a barrel (Day’s low on 7 August 2019) to the level of US$57.45 (Day’s high on 13 August 2019), an increase over 13.70 per cent.

The commercial crude oil inventory in the United States rose by 2.4 million barrels for the week ended 2 August 2019, and the total commercial inventory stood at 438.9 million barrels (as on 2 August 2019), which is above 2 per cent from the five-year average for this time of year.

Commercial Inventory Change in the United States:

Weekly change in commercial crude inventory in the U.S. (Source: Thomson Reuters)

Post an eight-week consecutive decline in the commercial inventory, which took the total commercial inventory below the 5-year average, the commercial crude stockpiles in the United States witnessed a positive addition in the overall inventory level during the first week of August.

The United States reduced its commercial inventory in June and July over the weak demand in the domestic market.

Thomson Reuters Poll and Smart Estimate over inventory Change (Source: Thomson Reuters)

Lens Over the United States Demand:

The domestic weekly oil production in the United States reached its July peak level of 12,300 thousand barrels per day for the week ended 2 August 2019. The local production of oil is high in the United States, and despite that the imports are improving, and coupled with a decline in export, it suggests that the demand in the United States is growing.

As per the data, the trailing monthly domestic production average in the United States stood at 11,950 thousand barrels per day for the week ended 2 August 2019, which remained unchanged as compared to the previous corresponding week trailing monthly average of 11,950 thousand barrels per day.

While the domestic production in the United States inched up, the market witnessed a surge in imports figure as well. As per the data, the average import in the United States Stood at 7.1 million barrels per day for the week ended 2 August 2019, which in turn, underpinned the growth of over 7.50 per cent as compared to the previous corresponding week average import of 6.6 million barrels per day.

An increase in net imports despite higher domestic production supported the crude oil prices in the international market.

The increase in the United States crude oil demand could be further inferred from the decline in exports despite higher domestic production and average imports. As per the data, the weekly exports from the United States stood at 1,865 thousand barrels per day for the week ended 2 August 2019, which is over 27.50 per cent lower against the previous corresponding period exports of 2,574 thousand barrels per day.

In a nutshell, the domestic production of crude oil increased in the United States for the week ended 2 August 2019, which in turn, coupled with higher imports and decline in exports supported the crude oil prices in the international market amid an increase in domestic demand.

Global Cues:

Apart from the increase in the United States domestic demand, the delay over the rise in tariff raised speculation in the market, which further prompted the development of speculative buyers in the oil market.

In the status quo, the United States mentioned that the nation would delay imposing a 10 per cent tariff on certain Chinese products such as cellphones and laptops. Prior to the announcement from the United States, the Chinese Ministry of Commerce mentioned that the officials from both China and the United States exchanged words and both the parties consented to re-initiate the trade talks within two weeks.

The escalation in the trade tussle between the United States and China had previously exerted pressure on crude oil prices as the market remained cautious over the gloomy global economic conditions. However, the statement from the Chinese ministry coupled with the U.S. stance to delay the tariff sparked a slight optimism in the global market, which in turn, supported the crude oil prices.

On the middle east counter, the United States and Iran had not moved further with any actions which could cause either the disruption in the oil supply chain or hamper the global demand outlook for oil.

Albeit, the alleviation over the middle east dispute is supporting the crude oil prices as well, but the energy investors should remain cautious as the middle east tensions remain a potential risk for the oil prices.

Crude on Charts:

LCO Daily Chart (Source: Thomson Reuters)

On the daily chart, the crude oil prices have corrected over 78.6 per cent of the primary up-rally, which started from the level of approx. US$49.79 and halted at the level of US$75.61, as suggested by the Fibonacci retracements on the chart shown above.

Despite a decent upside, the technical counter on the crude oil prices is revelling many potential hurdles for the prices, which should be monitored carefully and cautiously before entering into the oil market.

LCO Daily Chart (Source: Thomson Reuters)

On applying the 20 days Bollinger band, we can see that the primary hurdle to the crude oil prices is at the median of the Bollinger, which is at US$61.45.

LCO Daily Chart (Source: Thomson Reuters)

On analysing the chart further, we can see that the crude oil prices had formed a bearish flag pattern, which gave a healthy breakout, the recent upside in the prices could be an attempt to retest the breakout level.

If the bull strength persists and the prices breach the upward sloping trendline of the bearish flag and sustain it could possibly indicate a trend reversal for the prices; however, if prices remain unable to breach and sustain the same level, the down trend could continue.

  LCO Daily Chart (Source: Thomson Reuters)

On observing the wave motion and post connecting the Fibonacci series through 0,1,2, we can see that the prices currently took the support of 61.8 per cent projected level at US$57.54. The same level should act as the immediate support level for the crude oil prices.

The prices took the above mentioned hurdle and crashed in the international market yesterday to the level of US$58.23 (Day’s low on 14 August 2019); however, the support is still intact at US$57.54.


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