Crude Oil Update – Surprise API Draw Fueling Rally Ahead of EIA Report

April West Texas Intermediate crude oil futures are trading higher early Thursday following yesterday’s surprise drawdown in stockpiles according to the American Petroleum Institute and today’s inventories report from the U.S. Energy Information Administration.

Late Tuesday, the API reported an 884,000 barrel decline in U.S. crude supplies for the week-ended February 17. Traders were looking for a 3.4 million barrel increase. The API also reported a decline of 893,000 barrels of gasoline and a 4.3 million barrel decline in distillates.

The EIA is expected to report a 3.4 million barrel increase at 1600 GMT (Note the new time). However, this estimate may have changed due to the API report. Look for increased volatility if there is a divergence between the EIA report and the API report.

Technical Analysis

The main trend is up according to the daily swing chart. A trade through $55.03 and $55.16 will signal a resumption of the uptrend. This could trigger an acceleration into the January 3 top a $56.92. A trade through $53.12 will turn the main trend to down.

The main retracement zone is $54.39 to $54.99. This zone is controlling the longer-term direction of the market. The market is testing the lower level of this zone shortly before the regular session opening.

Forecast

Based on the current price at $54.36, the direction of the crude oil market today is likely to be determined by trader reaction to the 50% level at $54.39.

A sustained move over $54.39 will indicate the presence of buyers. This could generate the upside momentum needed to test the long-term downtrending angle at $54.73. Overtaking this angle could trigger a further rally into $54.99 to $55.03. If $55.03 goes then look for a test of $55.16.

The trigger point for an acceleration to the upside is $55.16. Taking out this top with conviction could spike the market into the next long-term downtrending angle at $55.83.

A sustained move under $54.39 will signal the presence of sellers. This is followed by a pair of uptrending angles at $54.36 and $54.12.

Look for an acceleration to the downside if $54.12 fails as support. This could trigger a steep break into $53.62, followed by the support cluster at $53.12 to $53.11. This is the last major support area before the next main bottom at $51.86.

Watch the price action and read the order flow at $54.39. Trader reaction to this level will tell us if the buyers or sellers are in control.