Summary:

• Weekly DOE inventories come in at -1.8M vs +2.9M exp
• First drop in the last 4 releases
• Brent Oil remains close to 2-year high

The latest inventory figures from the US department of energy have shown a drop of 1.8M barrels in the past week. This is the first drop in four after three consecutive rises with the damage done to refineries during hurricane Harvey causing a drop in demand. Against consensus forecasts for a rise of 2.9M and a prior print of 4.6M the headline could be seen as supportive for the oil price.

 Brent has fallen despite the unexpected drop in the headline with a rise in gasoline inventories and drop in refinery utilisation weighing on price. Source: xStation

Looking more closely at the components of the release however reveals some negative aspects with a rise in gasoline inventory of 1.1M compared to -2.1M prior and -0.9M exp arguably the worst. Refinery utilisation also dipped lower, falling to 5.4% from 5.5% last week in a further sign that could be interpreted as negative for price. 

Overall this leaves something of a mixed signal from the latest report, and the market reaction further supports this viewpoint. The market has dipped back to trade at its lowest level of the day following the announcement but the selling has been contained in the immediate reaction. 

 Brent Oil has traded up to its highest level since July 2015 this week. An inverse head and shoulders pattern could be in play longer term. Source: xStation

Longer term the outlook from a technical point of view remains favourable for longs with price on Tuesday reaching its highest level since July 2015. A long term inverse head and shoulders formation could be seen as a major reversal setup and could be seen to suggest that further gains may lie ahead. However, one note of caution to the bulls should be the current extreme level of long speculative positioning seen in the market as we pointed out during yesterday’s post.