Crude Oil Update – Prices Retreat on U.S. Inventory Build, Expected Libyan Output Increase

March West Texas Intermediate crude oil is trading lower on Thursday in response to yesterday’s reported weekly inventory build by the U.S. Energy Information Administration. Reports that Libya is getting ready to ramp up production is also weighing on prices. However, some of the selling is being diminished by a weaker dollar and the thought that OPEC and non-OPEC member are starting to comply with its agreement to curb output.

U.S. crude inventories posted a surprise build the week-ending December 16, jumping 2.3 million barrels compared with an expected draw of 2.5 million barrels. This was offset somewhat by drawdowns in gasoline and distillates.

Furthermore, Libya’s National Oil Corporation said it was hoping to add 270,000 barrels per day. Recently, Libya doubled output to 600,000 bpd, but had the capacity to produce about 1.2 million bpd.

Technical Analysis

The main trend is up according to the daily swing chart. However, momentum is pointing lower and the market is in a position to challenge the last two main bottoms at $52.10 and $51.80. Taking out these bottoms will change the main trend to down and reaffirm the selling pressure.

The new main top is $54.64. A trade through this top will reaffirm the uptrend.

The short-term range is $52.10 to $54.64. Its retracement zone is $53.37 to $53.07. This zone is currently being tested.

The intermediate range is $56.24 to $52.10. Its retracement zone at $54.17 to $54.66 provided resistance earlier in the week.

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

Forecast

Based on the current price at $53.12, the direction of the crude oil market today is likely to be determined by trader reaction to $53.07.

A sustained move under $53.07 will signal the presence of sellers. This is followed by a short-term uptrending angle at $52.73 and the $52.10 main bottom.

Holding above $53.07 will indicate the presence of buyers. Overtaking the price cluster at $53.35 to $53.27 will indicate the buying is getting stronger. This is a potential trigger point for an acceleration into the resistance cluster at $54.17 to $54.24.

Watch the price action and read the order flow at $53.07 today. Trader reaction to this Fib level will tell us if buyers are coming in to support the trend, or if seller are increasing pressure.

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