By Barani Krishnan
Forget China. Think EIA instead.
It may sound a little counterintuitive to suggest ignoring President Donald Trump's tweet threatening to blow the U.S.-China trade talks out of the water with the way the Dow and global markets have ponded.
Yet, if anything, oil prices have already come off their lows of the day and could drift until Wednesday, when the Energy Information Administration's dataset will tell if there was another big U.S. stockpile build last week.
West Texas Intermediate futures, the benchmark for U.S. crude, were down 14 cents, or 0.2%, at $61.80 per barrel by 12:47 PM ET (16:47 GMT). They fell more than 2% in Asian and European trading, sinking to $60.06, the lowest since April, while clinging to the key $60 support.
London Brent futures, the global benchmark for oil, were down 12 cents, or 0.2%, to $70.73. Like WTI, Brent also slumped more than 2% earlier, touching a 1-month low of $68.69.
While WTI and Brent briefly fell through their 200-Day Moving Average on Monday, the U.S. benchmark remains up 36% on the year and its U.K. peer shows a year-to-date gain of 32%
After a blockbuster gain of around 30% or more in the first quarter, the rally in oil has slowed, advancing just about 6% in April. Since the start of May, prices have traded more in the negative as the EIA surprised traders by reporting one large U.S. crude build after another over the past six weeks.
Last week's inventory growth, particularly, stunned the market, coming in at just under 10 million barrels. With that, a generous 30 million barrels have been added to U.S. crude stockpiles since early March.
Many theories abound as to the reason for the builds.
The bears say it is an outright reflection of weak demand. The bulls argue that it is an extension of the export issues at the Houston Ship Channel since a chemical fire in early March and remedy works thereafter that were still disrupting oil flows there.
Analysts such as Reuters’ John Kemp suggest higher-than-usual maintenance work undertaken by refiners this spring to avoid shutdowns later in the fall and winter, as they prepare for the launch of low-sulfur marine fuels under the International Maritime 2020 standards.
While relentless OPEC production cuts and U.S. sanctions on Iranian and Venezuelan oil have put a firm $60 floor under WTI and $70 base beneath Brent, traders said these support levels could easily crack if the EIA reports more bearish stockpile numbers.
"Overall, I think lower until Wednesday, when we see U.S. inventory reports," Scott Shelton, energy futures broker at ICAP (LON:NXGN) in Durham, N.C., said, predicting how the market will likely trade until the next EIA dataset.
Phil Flynn, senior energy analyst at The Price Futures Group in Chicago, agreed.
"Short term oil is well supplied but that may change," Flynn said. "Technically we could test around $57, but then should see a solid rebound."
