Oil falls after bearish EIA inventory report

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Terri Guillemets

As I pointed out earlier in the week the correlations between the price of oil and the macro or external price drivers have been changing with more emphasis being placed by market participants on the fundamentals and technicals of oil. This shifting of price drivers has continued for the last few days with oil prices (basis WTI) now trading at the lowest level in about the last six weeks or so while the externals are trading in a direction that would have normally pushed oil prices higher. Yesterday's EIA oil inventory report was bearish (see below for a more detailed discussion of the inventory report) and has played a major role in the most recent leg down in oil prices.

From a technical perspective (refer to the following chart of the spot Nymex WTI continuation chart) WTI has been in a wide trading range of between $92 to $104/bbl since the middle of October of 2011. Since the beginning of this year prices have been slowly moving lower after failing to breach the upper resistance level of the trading range and are now sitting at an intermediate support area of around the $97/bbl level. With little fundamental support the market is looking like it is setting up to breach the intermediate support level and possibly work its way down to a test of the range support area of $92/ bbl.

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