WTI Sells Off Deeply On Supply Data and Ukraine Risk

by on March 5, 2014 10:38 pm BST

West Texas Intermediate (WTI) crude sold off heavily from recent highs after inventory data from the Energy Information Administration (EIA) shows stockpiles gaining for a seventh week. The selling also became accelerated after the headline risk of the Ukraine-Russia tension died down, but it is still surrounded with uncertainty.

The EIA inventory data reported a 1.43 million barrel increase in stockpiles, rising to 363.8 million. This was higher than the 1.3 million inventory increase analysts were expecting in the week ending on February 28. Refinery operating capacity fell .6 percent to 87.4 percent as a switch from winter to summer fuels begin. John Kilduff, Again Capital LLC, said “we should see additional supply gains in the weeks ahead as refineries perform maintenance.” The lower refinery capacity coupled with higher inventories will keep crude price action to the downside.

Distillate fuel, including heating oil, rose by 1.41 million barrels to 114.5 million as the bitterly cold weather seen in the United States begins to mellow out. However, gasoline demand rose as inventories fell by 1.6 million barrels to 229 million. “The market looks weak until refiners end their maintenance and gasoline demand picks up in the second quarter,” said Rob Hawoth of US Bank Wealth Management.

On February 13, the WTI outlook said “crude has seen a boost through $100 per barrel after consolidating near $96-to-$98 per barrel along an ascending trend line and through the upper resistance trend line. The daily chart of crude futures shows that resistance is currently being priced in at $100.44, and that breakouts above this level have been sold. If crude can close above this price action resistance, the next bullish target is found at $102.18 per barrel, or $1.74 in upside.” The following week, crude blew through the target and began consolidating again prior to the Ukrainian tensions.

Today’s sell-off broke through the recent previous consolidation and through the ascending trend line that price action respected well in the past several weeks.

Support lies at 100.50 and 98.75 per barrel. Price action may make slight stops along the way as hit snags on the 50 and 72 EMA, but price action still remains to the downside.

A pullback to 101.70, just underneath the recent consolidation zone, is possible. If geo-political tensions worsen, traders could send prices back up to 103.13 per barrel.

1D Chart of QM

1D Chart of QM