After moving sideways for several trading sessions the crude oil complex made a turn to the downside yesterday and continues on the defensive so far this morning. Since the uptrend started in mid-March the spot WTI contract has increased by about $13 per barrel before stabilizing and then turning lower. The current move to the downside is still relatively shallow and can be categorized as a correction in a short-term up trend.
The current correction should not be a surprise as the nearby fundamentals remain bearish while the projected outlook shows an improving situation but with only a very mild uptick in forecasted demand. Also, the massive overhang in oil inventories is nothing other than production that will hit the market as soon as the forward curve structure moves into a mode of supporting a destocking pattern.
Yesterday’s American Petroleum Institute crude oil inventory snapshot was yet another reminder that the current fundamental situation is still not getting any better as crude oil stocks increased more than the market expectations while both gasoline and distillate fuel stocks also increased (see below for a more detailed discussion).
The oil market is walking a delicate line between those that are of the view that the market has hit a bottom compared to those that are still expecting another leg to the downside. For the last month or so the more bullish sentiment has prevailed with the market continuing to discount bearish news and quickly embrace anything even remotely bullish.