The spot WTI crude oil price surged 5.37% on Thursday, to close at $29.85 per barrel, after European Central Bank
(ECB) President Mario Draghi signaled at the press conference following their Governing Council meeting in Frankfurt that the bank may provide more stimulus in March, citing the outlook for inflation had weakened “significantly.”
Earlier in the month, the European Union's statistics office Eurostat said consumer prices in the eurozone rose 0.2% year-on-year in December, missing expectations of a 0.3% rise in a Reuters poll of economists. The core consumer price index, stripped of volatile components, unprocessed food and energy, grew 0.8% year-on-year, also below the 0.9% expected by economists.
Last Thursday, the spot WTI crude oil price surged 3.96% on short-covering, after St. Louis Fed President James Bullard said in his prepared remarks to the Economic Club of Memphis, that the “very substantial” drop in oil prices has contributed to low inflation and further declines may delay the return of inflation to target levels. Bloomberg reported that according to Bullard, a return to 2% wouldn’t occur until mid-2017 under a scenario in which oil prices fall through June.
Adding to the volatility were the weekly petroleum status reports from the American Petroleum Institute (API) and the U.S. Energy Information Administration
(EIA), as well as the contract rollover to the March 2016 contracts (CLH6) from the crude oil futures February 2016 (CLG6) contract, which expired on Wednesday.
The EIA said on Thursday that U.S. commercial crude oil inventories rose to 486.5 million barrels, up 4 million in the week ending January 15, compared to expectations of a Reuters poll of analysts for an inventory increase of 2.8 million barrels. The EIA also said that total motor gasoline and inventories increased last week by 4.6 million barrels while distillate fuel inventories decreased by 1 million barrels, compared to analysts’ expectations of a 1.4 million barrel gain in gasoline and 133,000 barrels increase in distillate fuel inventory.
Excluding the Strategic Petroleum Reserve (SPR) of about 695.1 million barrels, U.S. crude oil inventories remain near the peak level of 490.9 million barrels set in the week ending April 24, 2015. Late Wednesday, the API, an industry group that represents about 400 oil and natural gas corporations, said its crude oil inventory data for the week ending January 15 showed a build of 4.6 million barrels.
The EIA said stockpiles at Cushing, Oklahoma, the delivery point for WTI futures and the biggest U.S. oil-storage hub for WTI futures, rose by 191,000 barrels to 64.198 million barrels, a new record level. Total storage capacity for the site was 71.4 million barrels as of March 31, according to the EIA.
As of January 12, there were 249,863 long positions of light sweet crude oil futures, traded on the New York Mercantile Exchange (NYSE) by managed money or hedge funds, an increase of 17,865 long positions from the previous week, according to the Commitment of Traders (COT) data released by the Commodity Futures Trading Commission (CFTC).
This is compared to about 213,491 short positions, an increase of 30,929 short positions from the previous week where light sweet crude oil contracts are traded in units of 1,000 barrels. Since the beginning of the year, hedge funds have been betting on a major pullback in crude prices and increased their net short positions by about 37,379 contracts.
From our technical viewpoint, the crude oil price just bounced off the trendline support of the descending wedge chart pattern at $27.56 a barrel, as its downtrend continues in a bearish lower low chart pattern, meaning every low (L) is lower than the previous low. The near-term
technical resistances are at $30 and $32 per barrel, if the crude oil price continues an upward move.
The headwind for crude oil prices still remains to be the impact of Iranian crude on the global supply, as sanctions are lifted. In the EIA’s January Short-Term Energy Outlook issued this week, the agency forecasts Iran’s annual average crude oil production to be 3.1 million barrels per day (bpd) in 2016, or about 10% of projected total OPEC production, and almost 3.6 million bpd in 2017. Iran produced 2.8 million bpd of crude oil and exported 1.26 million bpd in November, according to Reuters.