Crude Oil Update – Prices Firm on Expected Drop in Inventories

March West Texas Intermediate Crude Oil futures are trading higher in anticipation of a huge drawdown in U.S. inventories. Later today, the U.S. Energy Information Administration’s weekly report is expected to show inventories fell for a fifth consecutive week by 2.5 million barrels.

Late Tuesday, the American Petroleum Institute (API) reported a larger than expected draw of 4.15 million barrels. Traders were looking for a 2.5 million-barrel draw. Gasoline inventories also fell by 1.96 million barrels.

Traders are also saying that despite the overall drawdown in oil stocks, the Cushing, Oklahoma futures hub is expected to show its 4^th weekly build of 1.9 million barrels. Some say these gains will be offset by drawdowns in the Gulf of Mexico.

Technical Analysis

The main trend is up according to the daily swing chart. A trade through $52.10 will turn the main trend to down. This is followed by $51.80. A trade through $56.24 will signal a resumption of the uptrend.

The main range is $46.62 to $56.24. Its retracement zone at $51.43 to $50.29 is the primary downside target.

The short-term range is $56.24 to $52.10. Its retracement zone at $54.17 to $54.66 is currently being tested. Trader reaction to this zone will likely determine the near-term trend. Buyers are trying to trigger a resumption of the uptrend. Sellers are trying to produce a potentially bearish secondary lower top.

Forecast

Based on the current price at $54.48 and the earlier price action, the direction of crude oil the rest of the session will be determined by trader reaction to the short-term Fib level at $54.66.

A sustained move over $54.66 will signal the presence of buyers. This could trigger a rally into $55.37.

A sustained move under $54.66 will indicate the presence of sellers, but don’t expect an acceleration to the downside unless $54.10 is taken out. This price is the trigger point for a steep break with the next major target coming in at $53.10.

A bigger than expected drawdown is likely to trigger a breakout over $54.66. If the number comes in as expected then look for a trade inside the retracement zone. A much smaller than expected draw or a surprise increase could trigger a break through $54.17.