Crude Oil Price Update – Bearish EIA Report Could Trigger Break into $54.62 to $53.78

January West Texas Intermediate crude oil futures are trading lower as investors await the release of today’s U.S. Energy Information Administration’s weekly inventories report at 1530 GMT.

Yesterday’s sharp break was attributed to a report from the International Energy Agency (IEA) which raised doubts about future demand.

Also helping to drive prices sharply lower late Tuesday was a report from the American Petroleum Institute (API) which reported a huge build of 6.513 million barrels of U.S. crude oil inventories. Analysts were looking for a draw of about 1.4 million barrels for the week-ending November 10.

Gasoline inventories, according to the API, also saw a build this week, of 2.399 million barrels for the week-ending November 10, against an expected draw of 1.1 million barrels.

Distillate inventories saw a decline this week, down 2.527 million barrels. Analysts had expected a drop of 500,000 barrels.

On Wednesday, the U.S. Energy Information Administration’s weekly inventories report is expected to show a draw of 2.1 million barrels, but this estimate is likely to change because of the results of the API report.

Daily Technical Analysis

The main trend is up according to the daily swing chart. However, momentum shifted to the downside with the formation and subsequent confirmation of the closing price reversal top at $58.14 on November 8.

This chart pattern typically leads to a 50% to 61.8% retracement of the last rally which makes $54.62 to $53.78 the next downside target. Since the main trend is up, buyers are likely to show up on a test of this zone.

Daily Technical Forecast

Based on the early price action, the direction of the crude oil market the rest of the session is likely to be determined by trader reaction to the resistance cluster at $55.58 to $55.64.

Look for the selling to continue on a sustained move under $55.58. Taking out yesterday’s low at $55.00 should lead to a test of $54.62 to $53.78. We’re likely to hit this zone if the EIA report is bearish.

Overtaking and sustaining a rally over $55.64 will signal the return of buyers. This could trigger a retracement of the sell-off with $56.57 to $56.94 the next likely target. Inside this zone is a downtrending angle at $56.89.