Oil defensive while waiting for inventory confirmation

Quote of the Day.

Wishing to be friends is quick work, but friendship is a slow ripening fruit.

Aristotle

After three strong up days the spot WTI contract is on the defensive this morning ahead of today’s EIA oil inventory report. WTI is now in a new higher technical trading range with $94.50 the support area and $97 the current resistance level. Last night’s API inventory report showed a much larger than expected build in crude oil stocks in the U.S., which is currently keeping a short term cap on prices until the more widely followed EIA report is issued later this morning.

On the other side of the equation the May Brent/WTI spread is in the midst of a mild short covering rally after the API report showed a build in crude oil stocks in both Cushing and PADD 2. As I have been discussing in the newsletter for the last few days the Brent/WTI spread is very oversold and susceptible to a round of short covering. So far the API crude oil builds in the mid‐west are currently serving as a mild catalyst to short covering as market players await confirmation from the EIA report.

At the moment the $13/bbl support has held for the May Brent/WTI spread with the first level of resistance around the $14/bbl level. However, if the intensity of the short covering increases the next area of resistance will be around the $15.40/bbl if the first line of upside defense is breached. I view today’s activity in the spread as still just short covering rally and not a change in the narrowing trend that has been in play since the spread began forming a top in February.

The externals have been a negative for oil prices with the euro falling to its lowest level since mid‐November of 2012. Although there has seen a deal put in place in Cyprus and the banks in Cyprus are scheduled to open tomorrow and the market is still uneasy about the type of deal that was done for Cyprus. The main concern is focused on whether or not the Cyprus type deal will be the new normal for future bailout deals (if needed) in the rest of the Eurozone. The declining euro is also weighing on European stocks today.

Further weighing on equities and the euro this morning is another round of bearish macroeconomic data out of Europe. In the U.K., business investment declined in Q4 while a 0.3% contraction of the economy was confirmed for Q4. Eurozone March consumer confidence declined while consumer sentiment held steady. EU March business confidence also declined in March. Europe remains mired in a recession with no short term signs that the economy of this region is heading for a growth spurt anytime soon… although the EU leading economic indicators did rise in February.

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