October crude oil had a strong rally on Thursday, September 8, 2016 as traders reacted to the EIA report. Crude became volatile just before the EIA report as traders bid up price to a pre report high reaching 46.58 and then reversing course and making its low for the day at 45.77 as traders evened positions before the report.
The market was looking for a small build in inventories (905,000 barrels) for this week’s report and yesterdays API report created uncertainty in traders’ minds and caused the pre-report volatility. The EIA report confirmed yesterday’s big drop in inventories from the API report (12.08 million barrel decline) with an even bigger decline of 14.5 million barrels.
Cushing, Oklahoma inventories declined by 434,000 barrels, a smaller decline than the 900,000 barrel decline expected. Gasoline inventories declined by 4.2 million barrels a huge drop and much larger than the 750,000 barrel decline expected. Distillates however had a huge increase of 3.38 million barrels.
The huge drop in overall inventories sent crude oil soaring as price overtook the early high and raced to the high of the day at 47.75. Crude then drifted and ended the day at 47.32. The drawdown took everyone by surprise as no one was expecting tropical storm/ hurricane Hermine to cause a major shutdown and lead to a huge drop in imports from 8.917 million bpd last week to only 7.069 million bpd for this week’s report.
The question now becomes – will imports dramatically rise next week and cancel this week’s numbers or is this the start of a trend? If this drop was due to Hermine, we should see big increases in imports as normalcy returns. Crude oil overtook the August 30 high (47.49) and puts 48.46 (August 26 high) and 48.71 (trendline) as the next areas of resistance. Support is at 46.20 (13 DMA) and then 46.04 (100 DMA).
High 47.75
Low 45.77
Last 47.32
Daily Pivot Points for 9/9/16
R2 48.93
R1 48.12
PIVOT 46.95
S1 46.14
S2 44.97