WTI Crude Staying Buoyant Despite Sharp Inventory Build Up

 | Apr 09, 2014 07:07AM ET

WTI Crude Oil prices are back up again due to increased tension between Ukraine and Russia, aided by broad bullish risk trends during yesterday's US session when stocks snapped a 3 day decline. Prices are now tapering lower but the pace of decline is mild, fitting the bill for a temporary bearish pullback rather than an outright reversal. This is impressive when we take into consideration the fact that the weekly report furnished by the American Petroleum Institute is extremely bearish, reflecting a 7.08 million barrels inventory build up when analysts were expecting a mild 0.75 million gain. Given these, it seems reasonable to believe that underlying sentiment in WTI Crude is bullish.h3 Hourly Chart/h3

The Daily Chart shows prices pushing towards 103.0 resistance, and it seems that the bias is towards the upside, as the latest rally has formed a higher high, affirming the bullish momentum from 17th March even if we trade lower from here. Hence, even in the case where prices push towards 101.0 in the short run, we should be able to find ample support which will propel prices back up to 103.0 and potentially an even higher high. Even in the event that 101.0 fails, the rising trendline will provide support which will open up the same bullish target mentioned earlier.

However, it should be noted that the overall bullish trend is not affirmed yet, as price will need to clear the 2014 high of 105.5 as confirmation that WTI is bullish in the long run. This scenario is hard to fathom for now as the Stochastic indicator is currently close to the Overbought region, suggesting that prices may find significant resistance around the 104.0 level. Also, fundamentals do not support a continued rally in WTI Crude as demand within the US and globally in 2014 should be lower than initial estimates since manufacturing activities across major developed and emerging economies (ex-UK) have came in short. As such, we would naturally expect WTI prices to head lower moving forward, especially since the US aims to increase supply steadily until 2015. Furthermore, with Stock prices looking precarious, there is additional downside risk for Crude as risk trends will naturally be bearish should a huge sell-off in stocks occur.

Hence, traders who want to participate in this bullish momentum need to be aware of the potential risks, but it is possible that bullish momentum could still send prices higher for decent profit to be made in the short-term. Conservative traders should keep a look-out for the DOE Inventory Report which will be released later today, before noon New York time, and use the reaction to gauge whether sentiment is still indeed bullish before participating in this rally.

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