So far this week, WTI crude oil prices have risen 0.8%. The United States Oil Fund LP (USO) has gained just 0.2%. On Wednesday, the EIA released the inventories report for the previous week.
According to the EIA data, US crude oil inventories have risen by 1.6 MMbbls (million barrels) to 452 MMbbls. A Reuters poll suggested a fall of 0.35 MMbbls in crude oil inventories. Gasoline inventories also rose by 5.1 MMbbls—3.6 MMbbls more than what the Reuters poll expected.
More importantly, the difference between crude oil inventories and their five-year average was at 3% in the last week. The difference is denoted by the “inventories spread.” The inventories spread was unchanged on a week-over-week basis. However, if the EIA reported any fall in the crude oil inventories, then the inventories spread would have contracted.
In the past, the higher inventories spread is associated with lower oil prices and vice versa. Read Oil Inventories: What Can Investors Expect? to learn more.
On December 6, OPEC+ members will decide about the future course of the production cut agreement. The CME’s OPEC Watch Tool indicates that most traders expect the current production cut to extend beyond March 2020.
This month, the Brent-WTI spread was between $5 and $6. The spread moved in a very narrow zone. The movement indicates that most of the traders don’t expect another cut in OPEC+ supplies. Usually, the Brent-WTI spread expands when OPEC+ production declines. Notably, the opposite is also true.
The development around the US-China trade deal will play an important role in the OPEC+ production cut decision. If the world’s two-largest economies agree to resolve their trade dispute on or before December 6, OPEC+ might not extend the production cut. In fact, this month, the IEA’s Oil Market Report showed solid growth in oil demand. Read What’s Crude Oil’s Price Outlook This Week? to learn more.
However, phase one of the trade deal might not be likely soon. Diplomatic relations between the US and China have deteriorated over the Hong Kong Human Rights and Democracy Act of 2019. Earlier, China warned about retaliating against the bill. To learn more, read Hong Kong Bill: US Must Bear Consequences, Says China.
Oil prices’ moving averages
Last week, the WTI crude oil active futures decisively moved above the 200-DMA (day moving average). However, on Wednesday, the difference narrowed to just 0.7%. The US markets were closed on Thursday due to the Thanksgiving holiday. The 200-DMA at $57.02 is the immediate support zone for crude oil futures. Today at 5:24 AM ET, WTI crude oil active futures have fallen 0.3%.
On Wednesday, active WTI crude oil futures settled 1.6%, 4%, and 3.5% above their 20, 50, and 100-DMAs, respectively. Prices above the short-term moving averages indicate a short-term rally.
Until December 5, WTI crude oil active futures could settle in the price range of $56.22–$60 per barrel. The price range was obtained from oil’s implied volatility of 27.8%. The confidence interval is 68%. Moreover, prices should be normally distributed for the analogy to hold true.
To know more about the crude oil market, please read Crude Oil Basics: Types of Crude Oil.