- According to API, US oil inventories dropped by 5.360 million barrels compared to the forecasted 2.114 million barrels.
- Investors are keen on whether EIA’s data later on Thursday will highlight a similar trend as API.
- Crude oil price is at its highest level since October 2018 amid optimism on rising demand.
US oil inventories data
Crude oil price is reacting to the US oil inventory data. The data is an important event as it highlights the status of oil demand. As such, a lower-than-expected figure is usually a bullish catalyst for the crude oil price.
On Wednesday, the American Petroleum Institute (API) indicated that the amount of oil in storage had dropped by 5.360 million barrels. The figure represented a higher draw than the expected 2.114 million barrels. In the previous release, the stockpiles had declined by a lesser amount of 0.439 million barrels.
Investors are now keen on whether EIA’s inventory data on Thursday will match the trend highlighted by the API. In the previous week, the government agency indicated that the amount of crude oil in storage dropped by 1.662 million barrels for the week ending on 21st May. The figure was better than the expected drop of 1.050 million barrels and the prior week’s reading of -0.426 million barrels. At the same time, gasoline inventories fell by 1.745 million barrels. The figure was higher than the predicted reading of -0.614 million barrels but lower than the prior week’s decline of 1.963 million barrels. In today’s release, analysts expect gasoline inventories and crude oil inventories to have fallen by 1.479 million barrels and 2.443 million barrels, respectively.
Optimism on the recovery of global oil demand
The week’s oil inventory data are an indication of the steady recovery of oil demand which is a bullish catalyst for the crude oil price. The pickup, which is especially evident in the US, China, and Europe, is largely based on the progress in vaccination. In fact, the data has come a few days after the Memorial Day weekend, which usually ushers in the summer driving season. It is a sign that more people are traveling within and outside their states, as they did prior to the coronavirus pandemic. According to the American Automobile Association, the number of travelers expected during this year’s season is around 37 million individuals. This represents an increase of 60% from 2020’s pandemic-affected season of 23 million.
In Europe, countries such as Germany have eased their quarantine regulations for vaccinated travelers. In the UK, there are concerns over the spreading Indian variant. However, Prime Minister Boris Johnson is still confident that the economy will fully reopen as planned on 21st June. In a recent interview, he stated, “I can see nothing in the data at the moment that means we can’t go ahead with step four, or the opening up on June 21, but we’ve got to be so cautious.”
Crude oil price technical outlook
Crude oil price is trading higher after a better-than-expected US oil draw. At the time of writing, the benchmark for US oil was up by 0.71% at $69.24. Since the beginning of the week, WTI futures have soared by about 4.12%. Notably, it is at its highest level since October 2018. On a four-hour chart, it is trading above the 5 and 10-week exponential moving averages with an RSI of 68.
I expect crude oil prices to soar further to the psychological level of $70. At that level, it is likely to experience some resistance and may pull back to around $69 before reviving its uptrend. As the week comes to an end, the bulls may have managed to push the price to the resistance level at $70 towards $70.50. However, this thesis will be invalidated by a move below the support level at $68.50.