- Crude revisits year's highest levels ahead of EIA report
- $50/barrel handle is once again acting as a magnet
- Strength of report will determine whether a break will happen
- Stronger dollar through May has not deterred oil bulls
All eyes on the EIA. Photo: iStock
By Ole Hansen
Crude oil has returned to the highest levels of the year with US inventory focus more than offsetting the headwind created by the stronger dollar and reduced supply disruptions. The $50/barrel handle is once again acting as a magnet and the strength of the inventory report at 1430 GMT will determine whether a break can and will be attempted.
The stronger dollar through May has not deterred oil bulls with the focus on major supply disruptions in Canada and Nigeria instead attracting the attention. Both WTI and Brent crude have as a result now for the past week been hovering just below the psychological level of $50/b.
Hedge funds, sensing the reduced momentum at the beginning of May when the dollar strengthened, were net-sellers for a couple of weeks. But spurred on by the mentioned supply disruptions they returned as strong buyers last week. A total of 75 million barrels were bought during the week ending May 17 leaving the combined net-long close to a record at 650 million barrels.
Short sellers continue to throw in the towel. Not least in Brent crude oil where the gross-short has collapsed to just 26 million barrels resulting in the long/short ratio hitting a new record of 16.1.
Brent crude remains within its current uptrend and a potential breakout this afternoon following the inventory report could propel it higher to the actual resistance which is at $50.90/b. With very few short positions left in the market to defend the bulls currently have the upper hand. The stronger dollar will be ignored unless we get a somewhat stronger than expected report. Likewise a strong report would challenge longs with support at $47.5 being the first line of defence.
Brent crude oil future continuous:
Source: Saxo Bank
The EIA report is more than just just one set of data so the focus today will apart from inventories, where a 2 million barrel drop is expected, also be gasoline inventories and implied demand as well as the estimated level of production.
for the calendar link to the EIA report, live at 1430 GMT.
– Edited by Clare MacCarthy