Crude oil price ripe for a breakout as WTI forms bullish pennant at 50 EMA
Crude oil price wavered in overnight trading even after the positive information released by the Energy Information Administration (EIA).
US inventories fall
The report showed that US inventories declined by 745k barrels in the previous week. This was a bigger decline than the 4.147 million buildup that analysts were expecting. It was also the lowest it has been since March, before the coronavirus illness was named a pandemic by the World Health Organisation (WHO).
The report had other important information as well. Crude oil refinery inputs in the United States averaged about 12.4 million barrels per day, which was 600k less than the previous week. The refineries also operated at a 67.9% capacity, which was lower than the previous week’s 70% capacity. In the same week, the US imported 5.4 million barrels of oil per day, which was lower than the previous week’s by about 321k.
Crude oil demand rising
Perhaps, the crude oil price has been relatively strong because of the perceived increase in demand as countries start to reopen. According to Bloomberg, the nightmare situation of full storage tanks has started to ease.
Still, there is a risk of reopening the economy very fast especially in high risk countries like the United States. As Anthony Faucci said, doing so would expose the country to more spreading and more unnecessary deaths. Therefore, there are risks of other shutdowns. Similarly, there are risks as other companies start to restart their plants. Companies like Conociphilips and Diamondback have said that they will likely restart their wells if price goes up. This will lead to more supply and lower crude oil price.
Looking at the daily chart, we see that WTI crude oil price has found some resistance at the 50-day EMA and the 38.2% Fibonacci retracement level. We also see the price has been forming a bullish pennant pattern, which is usually a sign that the price will rise. I expect the price to break-out in the upside as bulls attempt to test the 50% retracement level at 32.95.
On the flip side, a strong move below 20.00 will invalidate this trend. This price is an important psychological level and would mean that there are still more sellers in the market who may be keen to push the crude oil price lower.