July Crude Oil futures finished the week sharply higher, driven by a government report which showed a large drop in crude stockpiles, surprising analysts who were looking for a small increase.
Light, sweet crude for delivery in July gained about $2.71, or 2.6% for the week to $104.29 a barrel on the New York Mercantile Exchange, the highest close since April 21.
On Wednesday, May 21, the U.S. Energy Information Administration reported domestic oil stockpiles fell 7.2 million barrels in the week-ended May 16. This was the biggest weekly decline in more than four months. According to The Wall Street Journal, expectations were for an increase of 700,000 barrels. Traders cited a drop in imports of crude to a 17-year low as the main reason for the decline.
The reason for the drop in imports to an average of nearly 6.5 million barrels per day was the surging U.S. oil production that has reduced the need for foreign crude. Although the news drove the market higher this week, next week could be completely different since a one-week decline in imports is not a trend. Next week's data could produce bearish news especially if domestic production adds to the near record supply.
Nonetheless, bullish speculators should continue to watch the import number on a weekly basis besides the raw supply and demand data because this could become a trend that triggers a sharp rally. Although some analysts are dismissing the surprisingly large drop that could easily be reversed…
July Crude Oil futures finished the week sharply higher, driven by a government report which showed a large drop in crude stockpiles, surprising analysts who were looking for a small increase.
Light, sweet crude for delivery in July gained about $2.71, or 2.6% for the week to $104.29 a barrel on the New York Mercantile Exchange, the highest close since April 21.
On Wednesday, May 21, the U.S. Energy Information Administration reported domestic oil stockpiles fell 7.2 million barrels in the week-ended May 16. This was the biggest weekly decline in more than four months. According to The Wall Street Journal, expectations were for an increase of 700,000 barrels. Traders cited a drop in imports of crude to a 17-year low as the main reason for the decline.
The reason for the drop in imports to an average of nearly 6.5 million barrels per day was the surging U.S. oil production that has reduced the need for foreign crude. Although the news drove the market higher this week, next week could be completely different since a one-week decline in imports is not a trend. Next week's data could produce bearish news especially if domestic production adds to the near record supply.
Nonetheless, bullish speculators should continue to watch the import number on a weekly basis besides the raw supply and demand data because this could become a trend that triggers a sharp rally. Although some analysts are dismissing the surprisingly large drop that could easily be reversed during the next couple of weeks, the price action suggests otherwise. The rally after the report suggests investors are going to ride the upside momentum until proven otherwise.
Another bullish discovery found while reading the internals of the EIA report was the continued decline in stockpiles at the key delivery point for the benchmark U.S. contract in Cushing, OK. Sharp traders may have noticed that inventory declines in Cushing over the course of the year have been a key driver for U.S. oil prices.
Lastly, commercial demand for crude oil usually has a seasonal rise this time of year as refiners begin to increase production following a short-term maintenance period. At this time, they begin to gear up for the summer driving season. Bullish traders will be looking for this uptick in demand to reduce inventories that are currently in the neighborhood of record highs this year.
Technically, the main trend is up on the weekly chart. This can be seen clearly by the higher tops and higher bottoms.
Providing short-term support this week is an uptrend line at $102.10, followed by a set of longer-term support lines at $100.40 and $100.10.
The close near $103.00 has put the market in a position to challenge the April 2011 top at $107.17. Swing chart analysis projects two potential highs at $105.84 the week-ending May 30 and $109.97 in late June.
In summary, technical analysis shows a strong uptrend in motion. Fundamentally, the market received a boost from a drop in imports. The momentum created by the technical traders is likely to continue unless the next EIA report shows that the drop in imports was just an aberration. At this time, the trend is your friend until shown otherwise.
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