Oil Futures Experience High Volatility and Buying Prevails

Oil futures reacted to today’s release of inventory data from the Energy Information Administration (EIA) with an exceptionally wide price swing. The contract for February delivery on the New York Mercantile Exchange dropped as low as $50.75 and swung as high $51.89 at the time of the release.

However, buyers won the battle and oil futures have since climbed. At present, the contract is at $52.21, up 2.8%.

The EIA reported that crude oil inventories had a build of +4.1 million barrels, while consensus called for a build of 1.162 million barrels. U.S. crude oil refinery inputs averaged 17.1 million barrels per day during the week ending January 6th, 418,000 barrels per day more than the previous week’s average. This is the highest weekly figure going back to 1982. This data point is what traders focused on, sending oil futures sharply higher.

After the bell yesterday, the American Petroleum Institute (API) inventory data showed a build of 1.5mn barrels in the latest week, slightly higher than the consensus forecast of a build around 0.9mn barrels. The data followed last week’s draw of 7.4mn barrels and was the third build in the last eight weeks.

As a result of today’s move higher, oil futures reversed Tuesday’s loss and followed through to test resistance at the mid-point of Monday’s price range near $52.80. On a move above this level, the target becomes the January 6th high at $54.32.

This week’s move to the downside tested key support at the December $50.76 low. A sustained drop below this level would confirm a double top reversal pattern. The downside objective derived from this double top is at approximately $46/barrel.

With the Stochastic rising from an oversold level and producing a bullish crossover, the path of least resistance heading into tomorrow’s session appears to be to the upside. An increase in open interest reported for today’s advance would also support the bullish case.

February 2017 Oil Futures Daily Chart

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Tracy L. Morganthall, CMT, has been a Technical Market Analyst for more than 20 years. She has experience analyzing and producing reports on equities, both domestic and international markets, as well as Forex and commodities. She attended Trenton State College in Trenton, New Jersey, earning a Bachelor's in Finance.