EIA Reports Second Straight Draw On Inventory

For the second consecutive week, EIA oil inventories have come in negative. Increased refiner demand in anticipation of holiday fuel consumption is one of the primary factors being credited with the draw. In the wake of OPEC production cuts, and a major outage in the El Sharara oil field in Libya, this week’s lagging supply may attract some long-awaited bids to January WTI crude.

The EIA Number Is In…

This week’s inventory cycle has not disappointed the industry consensus, with both premier supply figures coming in negative. Here is a look at the hard data:

Event                                      Actual        Projected         Previous

API Crude Oil Stocks           -10.18M           NA                     5.36M

EIA Crude Oil Stocks           -1.708M         -2.990M            -7.323M

Tuesday’s release of the API figure brought traders to the market en masse An immediate uptick in January WTI crude oil was evident upon the Wednesday session electronic open.

However, this morning’s EIA report is a bit more encouraging for those interested in trading seasonal trends. While supplies are certainly on the decrease, draws this time of year are to be expected as illustrated by the EIA projections of -2.990M.

January WTI Crude Oil Futures

Today’s action in January WTI futures has been relatively tight. The EIA report fostered an immediate sell-off, yet price remains above the $52.00 handle.

Here are the levels to watch for later in the session:

• Resistance(1): Daily SMA, $53.69
• Resistance(2): Bollinger MP, $54.76

Bottom Line: Trading WTI following the EIA release is a challenge. Conditions are likely to tighten up, with a modest session range being the result.

In the event that this market does breakout, I will have sells queued up from $53.64. Using a 1:1 risk vs reward and an initial stop at $53.77, this trade is worth a fast 13 ticks on a rejection of the Daily SMA ($53.69).