Oil showed remarkable resilience overnight as official US Crude Inventories exploded higher to a shocking 15.20 million barrels, a number last seen in the height of the Covid-19 global shutdown earlier this year. Distillates and Gasoline Stocks all rose massively to 5.2 and 4.2 million barrels, respectively. The chief culprits appear to be export bottlenecks and falling domestic demand as Covid-19 curtails movement in America.
In other times, numbers such as the above would have seen oil prices drop by 10% or more. Instead, both contracts fell by only around one dollar a barrel, before regaining all those losses. Brent crude finishing 0.45% higher at USD49.05 a barrel, and WTI finishing 0.20% higher at USD45.70. In Asia, oil has advanced modestly again, both contracts adding a further 10 cents a barrel.
The price action overnight must be respected, coming as it does against impending OPEC+ production increases and a market that was already heavily long oil and distillate futures. It is clear that the vaccine-led global recovery narrative is what is powering oil markets, which are ignoring a stimulus stand-off in Washington DC, and a US dollar that has quietly ground higher over the past week. With Covid-19 vaccinations starting around in some countries this week and next, that narrative will continue to underpin energy markets to the exclusion of all else.
Brent crude has support at USD48.40 a barrel, the overnight lows, which followed the USD47.00 a barrel region. Only a weekly close below the latter would suggest market dynamics have structurally changed. In all likelihood, Brent is gathering strength to challenge resistance at USD50.00 a barrel which will open further gains to the USD54.00 a barrel region.
WTI has support at its overnight low at USD45.00 a barrel. That is followed by USD44.00 a barrel, with only a weekly close below delaying the bullish outlook. Initial resistance is at USD46.70 a barrel which opens the path to a test of the USD49.00/50.00 a barrel zone.