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Unexpected Inventory Buildup: Will Crude Oil Hit $52 per Barrel?

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Updated

Flag pattern

The June WTI (West Texas Intermediate) crude oil futures chart shows a potential flag pattern. Oil prices traded from $55 to $58 for the last four trading sessions. The US commercial crude oil inventory data will be reported by the EIA (U.S. Energy Information Administration) today. Prices may experience volatility due to inventory increasing more than market estimates. The API (American Petroleum Institute) data shows that inventories doubled. They were more than market estimates of 2.5 MMbbls (million barrels) yesterday.

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Support and resistance

The increasing inventory and production from OPEC (Organization of the Petroleum Exporting Countries) will put pressure on oil prices. Oil prices could test the support of $52 per barrel. Prices hit this level on April 13 and 14. In contrast, with the consensus of slowing production from the US, the falling rig count may support oil prices. The nearest resistance for oil is seen at $66 per barrel. WTI hit this mark in May 2009.

June WTI oil futures are trading above their 100-day moving average of $53.54 per barrel. The flag pattern is a continuation pattern. Crude oil prices might continue the current momentum. However, the RSI (relative strength index) is in overbought territory. Prices tend to fall from these levels.

The decrease in oil prices impacts oil refining companies’ margins—like Marathon Petroleum (MPC), Holly Frontier (HFC), and Western Refining (WNR). They account for 3.82% of the SPDR Oil and Gas ETF (XOP). Lower oil prices negatively impact ETFs like the ProShares Ultrashort Bloomberg Crude Oil (SCO) and the VelocityShares 3X Long Crude ETN (UWTI).

For recent updates, visit Market Realist’s Crude Oil ETFs page.

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