WTI crude up 75-cents today
The big story so far in 2016 has been the relentless decline in oil prices. Crude started the year near $38 per barrel but went on a seven-day losing streak that culminated in a brief decline below $30 yesterday.
Today oil prices have shown the first sign of life this year and are up $0.75 to $31.20.
In the short-term the climb above $31.40 is bullish as it breaks out from a minor wedge pattern. It points to a retracement to $32.00 or a retest of yesterday's high of $32.20.
In the bigger picture, crude is clearly oversold and the multitude of stories/analysts saying it fell fall below $20 suggest that negative sentiment is overdone.
There is a confluence of resistance near $34 per barrel that would mark a healthy retracement. Expect some consolidation in the $30-$34 range before the next leg.
If anything, I see short term risks to the upside.
Weekly oil data up next
The major event to watch today is the weekly oil storage report from the EIA. The consensus view is for a 2000K build in crude inventories after a 5085K drawdown last week.
The API numbers released late Tuesday, however, showed a 3.9 million barrel draw. However, they also showed a huge 7 million barrel build in gasoline (consensus is +2.5m) and a 3.7m barrel build in distillates (consensus+1.5m).
Last week when there was a surprise draw in oil it was overshadowed by the large builds in gasoline and distillates so be wary of a whipsaw.
Russia feeling the squeeze
Talk of Russian companies lowering production is also doing the rounds. TASS news agency carried comments from Deputy Finance Minister Maxim Oreshkin who said "The current oil prices may lead to quite hard and fast closures of certain oil producers in coming months."
The comments are getting circulated but I don't see any lasting bottom in oil until some companies start shutting the door. Right now, they're all waiting for 'the other guy' to go bust.
