U.S. West Texas Intermediate and international-benchmark Brent crude oil futures closed higher this holiday-shortened week, supported by a larger-than-expected drawdown in crude inventories earlier in the week and a decline in the U.S. unemployment rate.
However, gains were capped and there was an air of caution ahead of the long holiday weekend as a resurgence in U.S. coronavirus infections fanned concerns that economic activity will weaken in coming weeks.
Drop in Supply Underpins Prices
Helping to underpin crude oil prices this week were a pair of bullish reports from the American Petroleum Institute (API) and the Energy Information Administration (EIA).
The API reported on Tuesday a major draw in crude oil inventories of 8.156 million barrels for the week-ending June 26. Analysts had predicted an inventory draw of 710,000 barrels.
The API also reported a draw of 2.459 million barrels of gasoline for the week-ending June 26. Analysts were looking for a 1.583-million barrel draw for the week. Distillate inventories were up by 2.638-million barrels for the week, while Cushing inventories saw a build of 164,000 barrels.
The EIA reported Wednesday that U.S. crude inventories fell by 7.2 million barrels for the week-ended June 26. That followed three consecutive weeks of increases. Analysts polled by S&P Global Platts had forecast an average crude supply decline of 2.7 million barrels.…
U.S. West Texas Intermediate and international-benchmark Brent crude oil futures closed higher this holiday-shortened week, supported by a larger-than-expected drawdown in crude inventories earlier in the week and a decline in the U.S. unemployment rate.
However, gains were capped and there was an air of caution ahead of the long holiday weekend as a resurgence in U.S. coronavirus infections fanned concerns that economic activity will weaken in coming weeks.
Drop in Supply Underpins Prices
Helping to underpin crude oil prices this week were a pair of bullish reports from the American Petroleum Institute (API) and the Energy Information Administration (EIA).
The API reported on Tuesday a major draw in crude oil inventories of 8.156 million barrels for the week-ending June 26. Analysts had predicted an inventory draw of 710,000 barrels.
The API also reported a draw of 2.459 million barrels of gasoline for the week-ending June 26. Analysts were looking for a 1.583-million barrel draw for the week. Distillate inventories were up by 2.638-million barrels for the week, while Cushing inventories saw a build of 164,000 barrels.
The EIA reported Wednesday that U.S. crude inventories fell by 7.2 million barrels for the week-ended June 26. That followed three consecutive weeks of increases. Analysts polled by S&P Global Platts had forecast an average crude supply decline of 2.7 million barrels. The EIA data also showed crude stocks at the Cushing, Oklahoma storage hub edged down by about 200,000 barrels for the week.
The EIA also said gasoline supply rose by 1.2 million barrels, while distillate stockpiles fell by 600,000 barrels last week. Traders were looking for a supply decline of 2.7 million barrels for gasoline and an increase of 900,000 barrels for distillate inventories.
U.S. Factory Orders Rebound in May
Crude oil traders are very concerned with demand-side factors revolving around COVID-19 and risks over another round of lockdowns, which raised the importance of today's U.S. Factory Orders report.
New orders for U.S.-made goods rebounded in May, suggesting a turnaround in manufacturing, though business spending will likely contract again in the second quarter amid cheaper crude oil as the COVID-19 pandemic depressed global growth.
The Commerce Department said on Thursday factory orders increased 8.0% after falling 13.5% in April. Economists polled by Reuters had forecast factory orders increasing 8.9% in May.
Factory orders dropped 10.3% year-on-year in May. Manufacturing, which accounts for 11% of U.S. economic activity, appears to be regaining its footing, but a resurgence in coronavirus cases amid the reopening of business threatens the budding recovery.
Labor Department News
The Labor Department on Thursday reported U.S. non-farm jobs increased by 4.8 million in June, far better than the 2.9 million jump economists polled by Dow Jones had been expecting.
Crude oil investors also applauded a decline in the national unemployment rate, which dropped to 11.1% from 13.3% in May.
In a separate report, the Labor Department said Thursday that initial jobless claims rose by 1.427 million. The print marked the 15th straight week in which initial claims remained above 1 million and came in higher than expected by economists.
The data also showed the number of continuing claims - the number of people receiving unemployment benefits for consecutive weeks - rose to 19.29 million, an increase of about 59,000.
Technical Analysis
Weekly August West Texas Intermediate Crude Oil
Weekly Technical Analysis
The main trend is down according to the weekly swing chart. However, momentum has been trending higher since the week-ending April 24. The main trend will change to up on a trade through $54.71. A move through $20.28 will signal a resumption of the downtrend. Both are safe at this time.
The minor trend is up. A trade through $34.66 will change the minor trend to down. This will also shift momentum to the downside.
Following a nine-week rally, August WTI crude oil posted a technical pattern called a closing price reversal top during the week-ending June 26. This chart pattern has temporarily stopped the rally.
A trade through $41.63 will negate the chart pattern and signal a resumption of the counter-trend rally. A move through $37.08 will confirm the chart pattern. This could trigger the start of a 2 to 3-week correction.
The main range is $62.21 to $20.28. Its 50% to 61.8% retracement zone at $41.25 to $46.19 is major resistance. This zone stopped the rally a week ago at $41.63. The area is controlling the longer-term direction of the market.
The intermediate range is $54.71 to $20.28. Its 50% level at $37.50 is support. It stopped the selling pressure in the last two weeks.
The short-term range is $20.28 to $41.63. Its retracement zone at $30.96 to $28.44 is the primary downside target and support zone.
Weekly Technical Forecast
Based on the price action the past two weeks, the direction of the August WTI crude oil market the week-ending July 10 is likely to be determined by trader reaction to the 50% levels at $41.25 and $37.50.
Bullish Scenario
A sustained move over $41.25 will indicate the presence of buyers. If this move can create enough upside momentum then look for an eventual test of the 61.8% level at $46.19. This is the trigger point for an acceleration to the upside.
Bearish Scenario
A sustained move under $41.25 will indicate the presence of sellers. They are trying to stop the rally. A sustained move under $37.50 will indicate the selling is getting stronger. These sellers will be trying to drive the market into the short-term retracement zone at $30.96 to $28.44. A test of this zone will set up the next buying opportunity.
Conclusion
Given the rise in the number of COVID-19 infections in the United States and the implementation of new restrictions and lockdowns, the June Non-Farm Payrolls report may be the best we'll see for a while. This could mean more pain for crude oil traders as fuel demand could weaken.
This is just one of the factors that could generate a bearish influence on the markets next week.
Next week's initial claims report should be a major event for crude oil traders as demand concerns move to the forefront.
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