Crude Oil Prices Fall on Rising Stockpiles and Viral Resurgence

CRUDE OIL PRICE OUTLOOK:

API reported a 0.436-million-barrel increase in crude inventories for the week ending April 16th
Viral resurgence dented risk appetite, pulling oil prices from five-week highs
WTI has likely formed a “Double Top” pattern on the 4-hour chart, hinting at further losses

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Crude oil prices extended lower during Wednesday’s APAC trading session amid a broad ‘risk-off’ mood. Viral resurgence in some of the world’s major oil importing countries, such as India and Japan, dented the prospect for energy demand. Crude oil prices fell from five-week highs. A worsening pandemic situation in those countries underscored the fragility of a global recovery as uneven distribution and adoption of the Covid-19 vaccines posed a threat to reopening.

Risk sentiment is tilted to the cautious side as US and APAC stocks pulled back broadly and safe-haven assets such as Treasuries and gold rallied. Energy was among the worst performing S&P 500 sectors overnight, reflecting weakness in its outlook. The reflation trade is probably taking a pause, allowing investors to reassess the scope for recovery and reshuffle their portfolios towards a more balanced setting. Against this backdrop, oil prices may be put under near-term pressure.

Daily Change in Covid-19 Cases – India and Japan

Source: Google

The American Petroleum Institute (API) reported a small build in crude oil inventories, further weighing on prices. Stockpiles climbed 0.436 million barrels for the week ending April 16th, marking the first increase in four weeks. Markets had anticipated a 2.86-million-barrel decline however. Rising inventories suggested that production is probably increasing at a faster pace as prices gained recently.

Looking ahead, the Energy Information Administration (EIA) will report weekly inventories data later today. Markets anticipate a 3.55-million-barrel draw in America’s stockpiles after seeing a massive 5.89 million decline last week. A larger-than-expected fall may serve to underpin crude oil prices, whereas a smaller draw or rise would likely do the reverse (chart below).

Source: Bloomberg, DailyFX

Technically, WTI appears to haveformed a “Double Top” chart pattern after hitting a strong resistance level at US$ 63.83 on the four-hour chart. A “Double Top” pattern usually occurs at the end of a bull trend and signals a trend reversal. Prices have breached below the 50% Fibonacci retracement and may be looking for support at the 38.2% retracement level (61.31).

The MACD indicator has formed a bearish crossover and trended lower since, suggesting that further consolidation may be underway.

WTI Crude Oil Price – 4 Hour Chart