Oil prices tumbled after crude oil inventory data showed supplies rose last week. According to the US Energy Information Administration report (EIA), crude stocks rose by 2.5 million barrels in the week ending August 19.
That was significantly above the 200,000-barrel increase expected. WTI oil fell to $46.71 immediately after the data from a high of $47.69 before the data.
Today’s data report follows the American Petroleum Institute (API) data from Tuesday which showed a rise of nearly 4.5 million barrels.
Iran will attend output-freeze talks
Iran will attend OPEC and non-OPEC talks on oil production in September, boosting expectations that an agreement to freeze output may be on the cards.
Considering oil’s spectacular rally over the past weeks in anticipation of an agreement, we believe that prices could remain supported or even rise further over the coming month as speculation for a deal heightens.
However, we would be hesitant to trust that these talks will actually bear fruit. Let’s not forget that a freeze was rejected in Doha at a period when prices were trading much lower, suggesting that it’s far more unlikely that producers will strike an agreement now.
Furthermore, we remain skeptical of how meaningful a freeze would be at current output levels given that major producers including Saudi Arabia, Russia, Iran and Iraq, are operating around maximum production capacity.
This implies that even if a consensus is reached, the market is likely to continue to be over flooded with supply for some time.
Trading Above That Uptrend Line
As long as WTI is trading above that uptrend line, I would consider the short-term picture to stay positive. If the bulls take control at some point and manage to break above 48.30 (R1), I would expect them to target again the 49.35 (R2) zone, marked by the peak of the 19th of August.
However, for now I see the likelihood for the current retreat to continue a bit more. This is evident by our short-term oscillators.
The RSI has just touched its toe back below its 50 line, while the MACD, already below its trigger line, appears ready to turn negative.
Zooming out to the daily chart, I see that oil’s recovery started on the 3rd of August after the price hit support slightly below the 50% retracement level of the 20th of January – 9th of June uptrend. What is more, on the 12th of August, WTI broke above the psychological 45.00 zone and the downtrend line taken from the peak of the 29th of June.
All these make me believe that the medium-term outlook has turned back to the upside and enhance the case for the bulls to take charge again at some point soon.
• Support: 47.40 (S1), 46.60 (S2), 46.00 (S3)
• Resistance: 48.30 (R1), 49.35 (R2), 50.00 (R3)