WTI drops back to test $ 56.50 on IEA report

• Supported by the US crude inventory draw.
• Rising US output and IEA report cap gains.
• Looks vulnerable below $ 56.50.

WTI (oil futures on NYMEX) ran through fresh offers and dropped back to test the $ 56.50 mark, finally breaking the overnight consolidative channel to the downside.

WTI rejected just shy of the $ 57 mark

The recovery attempts in WTI lost legs once again near $ 56.90 levels, as the latest IEA report weighed down on the sentiment around the commodity. IEA: Global supply and demand not forecast to balance until late 2018

The risk also remains to the downside as a bigger-than-expected drawdown in the US crude stockpiles was negated by a build in gasoline stockpiles and rising US output levels.

The US crude oil stockpiles fell by 5.1 million barrels in the week to Dec. 8, the fourth consecutive week of decline, to 442.99 million barrels, the lowest since October 2015. Meanwhile, the US oil production has risen by 16% since mid-2016 to 9.78 million barrels per day, the highest since the early 1970s.

Markets ignored the reports that Forties oil and gas deliveries were halted in the first North Sea force majeure in years, as the repair works is expected to last several weeks. At the time of writing, WTI drops -0.15% to trade near 5-day lows of $ 56.48 while Brent steadies near $ 62.50.

WTI Technical Levels

Jason Sen, Director at DayTradeIdeas, noted: “WTI Crude lower as predicted, initially holding just below support at 5710/00 but eventually bottomed exactly at the next target of 5665/55. THE KEY TO DIRECTION IS important support at 5600/5590 but longs look risky this time. A break lower IS A SELL SIGNAL targeting good support at 5505/5495. A bounce from here is likely on the first test so if you are trading short term, cover shorts - although the longer term outlook remains negative. (WE THEN SELL ON A BOUNCE TO 5600). Outlook negative but an unexpected break back above 5800 could allow a move towards strong resistance at 5890/5900.”