Huge EIA Drawdown Seen

Oil prices are looking a little more muted today following a strong rally yesterday as traders digested the latest EIA inventories data. The group reported a drawdown of 4.9 million barrels, a deeper drop than the prior week’s 3.4-million-barrel decline and well below the -0.4 million-barrel reading the market was looking for. The data serves as strong evidence of growing demand in the US, typical over the summer driving season and has helped offset some of the weakness from softer China data at the start of the week.  

USD Impact

Along with the deeper-than-expected inventories decline, crude sentiment is also being boosted by a softer US Dollar this week. Solidifying expectations of forthcoming Fed easing are keeping USD pressure for now with the greenback vulnerable to further losses on any incoming US data weakness or dovish Fed commentary. This backdrop should help keep crude prices supported with a weaker Dollar helping stoke demand.

Geopolitical Uncertainty & Supply Risks

Away from the US, geopolitical uncertainty is also a major driving factor for crude prices. Ongoing conflict in the Middle East and between Russia and Ukraine means that supply disruptions remain a key risk. Any news regarding an escalation of violence in either of these conflicts is likely to drive fresh upside in Crude. However, if we start to get any signal that ceasefire is likely between Hamas and Israel this should see crude prices unwinding near-term with firmer downside if a ceasefire is agreed.

Technical Views

Crude

The rally in crude prices has stalled for now into the 82.59 area with price running into selling interest at the retest of the broken bull channel lows and the bear trend line from last year’s highs. With momentum studies weakening, a further correction lower might be seen though the bullish outlook remains while price holds above the 77.64 level.