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Crude Oil Prices May Struggle to Rise as Inventories Swell

Crude Oil Prices May Struggle to Rise as Inventories Swell

2017-03-01 09:57:00
Ilya Spivak, Sr. Currency Strategist
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Talking Points:

  • Crude oil prices rise in risk-on trade after Trump speech
  • Fed’s Brainard may encourage further gold price decline
  • EIA inventory data may top forecasts, capping oil gains

Crude oil prices dipped to a two-week low yesterday but sellers ultimately failed to sustain momentum.

A host of potential catalysts encouraged the move lower. OPEC Secretary General Mohammad Barkindo said producers outside of the cartel that signed up to its output cut deal are lagging on implementation. Separately, Iran said it was too soon to renew the accord beyond the first half of the year while Saudi Arabia reportedly increased output in January.

The WTI benchmark established an intraday bottom and recovered alongside the S&P 500, US Treasury bond yields and the US Dollar while gold prices turned downward. That seems to suggest the recovery reflected pre-positioning for the possibility of a revitalized “Trump trade” before the US President gave a much-anticipated speech to a joint session of Congress.

As it turned out, that is precisely what happened. While Trump did not offer substantive fiscal policy details that markets have been keen to see, his conciliatory tone appeared to soothe jittery investors. Crude is rallying alongside share prices while gold is licking its wounds near the daily low in early European hours. US index futures rea pointing convincingly higher, hinting the risk-on mood will carry into Wall Street trade.

Looking ahead, on-coming US economic data is expect to put performance as broadly on-trend, with the spotlight likely to be pointed at comments from Fed Governor Lael Brainard. She is a vocal dove and if her remarks echo the pro-tightening message on offer from other US central bank officials in recent weeks, gold may fall further as the case for a March rate hike looks even more compelling.

Meanwhile, oil prices may stumble as official EIA weekly inventory flow data comes across the wires. An increase of 1.63 million barrels is expected. A private-sector estimate from API published yesterday (but overlooked as the Trump speech dominated attention) argued for a larger 2.5 million barrel build over the same period. If that proves prescient, sellers may attempt to retake the initiative.

Are crude oil and gold prices matching DailyFX forecasts so far in 2017? Find out here!

GOLD TECHNICAL ANALYSISGold prices edged lower as expected after putting in a bearish Dark Cloud Cover candlestick pattern. A daily close below the 1242.12-45.35 area (trend line, 23.6% Fibonacci expansion) exposes resistance-turned-support at 1218.90. Alternatively, a push above the 38.2% level at 1263.15 targets the 50% Fib at 1277.53.

Crude Oil Prices May Struggle to Rise as Inventories Swell

Chart created using TradingView

CRUDE OIL TECHNICAL ANALYSISCrude oil prices remain stuck in a narrow range, dithering after completing a bullish Triangle chart formation. A daily close above the 55.21-65 area (January 3 high, 38.2% Fibonacci expansion) targets the 50% level at 57.18. Alternatively, a move below Triangle top resistance-turned-support at 53.66 aims for trend line support doubling as the Triangle bottom, now at 52.31.

Crude Oil Prices May Struggle to Rise as Inventories Swell

Chart created using TradingView

--- Written by Ilya Spivak, Currency Strategist for DailyFX.com

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