WTI prices behaved as we expected yesterday. Prices tanked after peaking above 104.5 following a surprise bullish push during the European session even though there was very little reason to justify the push. Hence, a reversal was always expected and bears duly responded.
The much higher build up in Crude Inventory reported by the DOE (+10 million vs 2.3 million expected and 7.6 API estimate) certainly helped to pile bearish pressure on a lower implied demand. But it should be noted that prices have topped way before the numbers were released. Hence, it is reasonable to believe that the DOE numbers merely accelerated or exacerbated the decline rather than resulted in a fundamental shift in sentiment.
The implication is that for whatever reason, overall sentiment is still bullish for WTI. Price action agrees, as prices managed to rebound off 103.5 soft support, and are trading back above the 104.0 round figure once again without any good justification.
Given the lack of strong fundamentals for further gains, it is imperative that traders seek further confirmations that the current pop above 104.0 can move significantly higher. In this case, a break of 104.15 - 104.3 may be necessary to demonstrate strong bullish convictions, but we should still remember that "significantly higher" here is highly subjective, and may simply mean a move toward yesterday's high or perhaps 105.0 round figure resistance. This is the inherent risk of trading on sentiment momentum alone which is not supported by any short-term fundamentals and traders will need to evaluate their risk/reward ratio to determine if going long above 104.3 for an outlook of around 50 pips more is worth the risk.