The bearish potential for oil markets had already abated on Wednesday morning. Market fundamentals turned from "bearish" to "neutral to bearish" after the release of the API's slightly bullish inventories data and the technical constellation turned from "bearish" to "neutral". As to the technical constellation, we had already cautioned on Wednesday morning over possible buying signals which might trigger an upward correction. After the losses oil futures had posted earlier this week, investors tended to cover their short positions Wednesday morning. Around noon, the technical constellation turned bullish against the backdrop of the light price increase. The Stochastic indicator gave buying signals at the Brent and the WTI chart. Bull pressure increased in the course of the day, leading to a technical price rally which pushed oil futures to new highs even before the release of the DOE's data on US oil inventories. Consequently, the RSI and the Stochastic indicator gave a buying signal at the Gasoil chart, too.
The technical constellation thus turned clearly bullish. The DOE's report (released at 3.30 p.m. due to the return to standard time in Europe) came in bullish as well, accelerating the price increase. Oil futures breached several resistances in this phase, triggering further technical buying orders. The 7-period moving average also played a major role on Wednesday. Oil futures broke above this line which had limited the upside within the downtrends until then. The results of the FOMC's meeting only briefly weighed on oil prices Wednesday evening. Oil futures thus ended the day with considerable gains. The technical constellation already turned bullish on Wednesday, after the Stochastic indicator and the RSI gave off fresh buying signals at ICE and NYMEX charts. Due to the price increase which followed, most of the upward potential is likely to have been spent by now. The RSI has turned downward again, losing its impact. The Stochastic indicator remains bullish as it has exceeded 50%. From a merely technical perspective, the constellation should thus still be assessed as bullish. However, we regard the technical constellation as "merely" neutral to bullish as the upward potential has abated. The technical upside is limited by the 21-period moving average. If oil futures sustainably exceed this line, there would be another buying signal which would make the technical constellation turn clearly bullish again. Oil futures might then approach the upper Bollinger Band.
ICE Gasoil contract for November delivery settled at 451.75 USD on Wednesday, this is +20.75 USD above Tuesday's settlement. With some 43,000 deals the traded volume (front month) was below average.
Market participants on Wednesday not only waited for the DoE report to be released but also anticipated the FED's comments on its future monetary policy. As expected the central bank left its interest rate unchanged at its historically low level. But, contrary to analysts' expectations, the December meeting was mentioned as the presumable date for an interest rate hike. If this does not mean that the FED will indeed hike rates on the occasion of this meeting, the statement is still a surprise as the market was prepared for 2016.
The comments supported the dollar and thus weighed on oil prices at ICE and NYMEX because dollar-nominated oil becomes more expensive for buyers outside the U.S. Apart from that higher rates mean that there is less liquidity around which is negative for the oil and the stock market and results in slower economic growth and weaker oil demand. Still, oil prices only dropped temporarily after the comments as did stocks. Technical movements and the weekly reports on U.S. petroleum inventories dominated the oil market and supported prices. Yesterday's rally is seen as mainly technically driven as traders covered their short positions they had accumulated during the latest price decline. And some analysts, such as Gene McGillian of Tradition Energy, feel that the technical upward correction was overdue.
Will Riley, analyst with Guineness Atkinson Asset Management, sees the latest rally as still within the daily scope in a volatile market and thus as limited. As OPEC members have repeatedly pointed out not to be ready to cut production, the global market will stay oversupplied throughout the first half of 2016, he commented. But, as yesterday's rally was full of verve prices might continue to rise today, adds Ric Spooner, analyst with CMC Markets. Even if there are some bullish factors in the market analysts assess the situation still as bearish in the medium term, as global oil consumption is seen staying muted over the six months to come, according to the latest estimates of the EIA. And the expected barrels from Iran will add to the global oversupply.
Euro zone economic indicators:
- Business and consumer sentiment index October 105,9. Forecast: 105,2; previous month: 105,6
- Consumer confidence October -8,0. Forecast: -8,0; previous month: -7,1
U.S.
Nymex : Oil futures hardly changed in Asian and early electronic trading this morning. However, market players are starting to take profits after Wednesday's price rally which is why oil futures are currently edging lower. The traded volume at NYMEX is above average this morning. Investors are now waiting for the European financial and forex markets to open, as well as the economic indicators which are due today .
Data on US oil inventories:
Whilst refinery utilisation increased, US crude oil inventories rose. Distillate and gasoline stockpiles declined. The data on US oil inventories for the week ending October 23 in detail:
US refinery run rates increased more than anticipated. This indicates that seasonal maintenance is coming to an end. Commercial crude oil demand rises when throughput increases. This explains that the builds in overall crude oil stockpiles were less sharp than expected by experts and reported by the API. Moreover, crude oil imports declined by -0.439 mbpd. Crude oil inventories in Cushing, Oklahoma, the delivery hub for NYMEX crude oil futures sharply declined, adding to the bullish bias of the figures on crude oil stocks.
Total product demand considerably increased by +0.826 mbpd, renewedly exceeding the 20 mbpd-level. Whilst distillate demand rose by +0.442 mbpd (or 11.6%), gasoline demand grew less significantly by +0.186 mbpd (+2.0%). The higher demand made distillate and gasoline stocks drop more sharply than the API's data had lead to expect. Along with the increase in refinery run rates, this is a clearly bullish aspect.
The only bearish factor in the DOE's report is the data on US crude oil production. According to the DOE, US oil output increased by +16,000 bpd last week. The reported 9.112 mbpd is still far more than the average 9.02 mpbd the EIA has forecast for the month of October.
Overall, the DOE's data on US oil inventories can thus be assessed as clearly bullish, even though US crude oil stockpiles climbed to 480.0 million barrels last week, which is only 10.9 million barrels below the alltime-high hit in April.
Houston (ex-wharf indications 29-10)
380cst $214.50
180cst $275
MGO $477
New Orleans (ex-wharf indications 29-10)
380cst $225.50
180cst $277
MGO $460.50
Singapore (delivered indications 29-10)
Brent is now surging after the stock reports and the FOMC meeting now with +$1.62 for December contracts. Singapore paper is following with +$7.75 for 180cst with +$7.75 for 380cst for Nov, and for Dec 180 cst +$0.30 and 380cst with -$1.00 with MGO contracts Nov following with +$1.48 and in Dec with +$1.51. The cargo market is yet to react to paper with 180cst -$3.22, 380cst down with -$3.79 and MGO with +$0.15.
380cst $237
180cst $252
MGO $434
Fujairah (delivered indications 29-10)
380cst $235
180cst $273
MGO $612
ARA (Amsterdam - Rotterdam - Antwerp)
Indications for delivered bunkers:
380cst : $210
MGO 0.1%S: $400
