U.S. West Texas Intermediate and international benchmark Brent crude oil rose for a second day on Tuesday on signs that markets are gradually tightening after years of oversupply. However, gains were capped because of uncertainty over supply/demand in 2018.
December WTI crude oil settled at $51.23, up $1.30 or +2.60% and January Brent crude oil closed at $56.36, up $0.82 or +1.48%.
Traders continue to look for a catalyst to fuel the next major move. Most of this week’s price action has been in response to commentary from OPEC officials. This week’s American Petroleum Institute’s and U.S. Energy Information Administration’s weekly inventory reports have been delayed a day due to Monday’s federal holiday.
Traders are saying that inventory draws will be sign that short-term conditions were tightening. Additional factors that could help raise prices are geopolitical risks and low levels of spare capacity.
Global economic growth is also expected to be supportive. Late Tuesday, the International Monetary Fund forecast global growth at 3.6 percent this year and 3.7 percent for 2018.
Thursday’s crude oil report is expected to show a draw of -1.9 million barrels. Last week, the draw was 6.0 million.
Today, the U.S. Dollar could come into play because of the release of the Fed minutes. Hawkish minutes could support the dollar which could limit demand for dollar-denominated crude oil.
Early Wednesday, WTI crude oil is testing a key technical area bounded by $51.27 to $51.71. This zone is important to technical traders. Aggressive counter-trend traders are going to come in on a test of this zone in an effort to stop the rally and form a new lower top. Buyers are going to try to drive the market through this zone. They want to make $49.44 an important bottom.