June West Texas Intermediate crude oil futures closed more than 1 percent higher on Thursday, putting the market in a position to post a solid gain for a second consecutive week. Despite the strength into the latter half of the week, traders remained skeptical about the market’s ability to sustain its current upside momentum.
The U.S. Energy Information Administration’s (EIA) weekly report released on Wednesday showed crude inventories at record levels for the week-ending March 31. Initially, traders responded by selling. However, the move was short-lived and by Thursday, aggressive counter-trend buyers were back, putting the market in a position to challenge the week’s high.
While some analysts are claiming that the current run-up is being supported by improving refinery runs in anticipation of the spring/summer driving season and a decline in gasoline inventories, I think that some of the credit for the move can be placed on speculative buying ahead of a possible announcement of an extension of the OPEC-led plan to cut output, trim the global supply glut and stabilize prices.
However, as a technical trader and a price action guy, I think the best thing that happened to this market over the past month has been the aggressive trimming of positions by hedge funds and commodity money managers. When they built record long positions earlier in the year, they essentially jammed up the market and it had nowhere to go.
Now that the number…