Summary:

• DOE inventories: 5.0M vs 2.5M exp and 2.4M prior
• Large draws in distillate and gasoline contradict build in headline 
• Oil markets lack direction and remain in longer term consolidation

The weekly US oil inventory data has just been released, but unfortunately it has provided little by the way of clarity for oil traders in sending mixed messages. The headline reading showed a large build of 5.0M against consensus forecasts for 2.5M and a prior reading of 2.4M, which appears even more negative for price when you consider that last night’s API showed an increase of just 1.1M. 

 US inventories rose in the latest piece of data, with the current levels close to the 5-year average. Source: XTB Macrobond

However, a closer look at the components of the report reveal some positives for crude bulls with the distillate and gasoline inventories both experiencing sharp declines. Compared to an expected drop of -1.7M the -4.4M seen in distillates represents a larger decline and it was similar for gasoline inventories which fell sharply to -6.3M from -0.8M last time out. Furthermore refinery utilisation rose more than expected in another positive for price, increasing to 2.0% from 0.2% against consensus forecasts for -0.3%. 

 

 Gasoline inventories appear to be following a similar path to that seen over the past 2 years with a strong start to the year potentially beginning to turn. Source: XTB Macrobond 

Due to the mixed data released, with several positives and negatives, the market reaction hasn’t been too clear. Price has whipsawed both lower and higher in a range of around 60 ticks and currently  trades a little lower than when the release occurred.. 

 Oil has been volatile since the release but is yet to show a clear direction. Source: xStation

On a daily chart a longer term head and shoulders formation may be continuing to develop with price potentially forming the second shoulder. Recent weeks have seen the range narrow in a triangle consolidation and the market could be set to break out of this in the not too distant future. 

 Oil is consolidating lately and could be set for a breakout soon. Source: xStation

Another fundamental situation to be aware of if you are following this market is the latest political situation in Washington and how it could effect Iranian oil production. For more please view here.