A year ago today the Bank of China shocked global markets by devaluing its currency and helped set up the environment for an oil market crash. While the oil market looks weak due to seasonal factors and high inventories, do we have the same situation a year later that can set up an oil market crash? I think not.
The first round of fundamental data hit the media airwaves mid-day with the release of the EIA forward projections followed by the API data late in the day. The EIA report was biased to the bearish side as they raised its estimated for U.S. production (see the charts below for more details).
The American Petroleum Institute (API), an industry group, reported a sharper-than-expected 2.1 million barrel rise in U.S. weekly crude stockpiles. As a result, hopes that the official data from the EIA would reveal a 1.3 million decrease – the first decline in two weeks – were dashed.
In what is one of the quieter weeks on the economic data side, oil has once again taken the spotlight after WTI crude dipped briefly below $40 a barrel last week for the first time in almost four months. Oil entered into a bear market at the end of last month and even now remains just under 20% below its highs from June as oversupply continues once again resurfaced.
China's July exports fell 4.4% and imports declined 12.5%. The weak state may give the Fed pause before increasing rates because of the China debacle a year ago after the Fed raised rates in December. It could also force China to add more stimulus at the same time. Yet, what also is providing support is talk about OPEC having a special meeting and rumors that they will try to bring back the concept of an oil production freeze.
Crude oil prices had a second day snapback taking the crude market back out of bear territory and getting crowded out shorts to run for cover. Oil prices found support from the UK stimulus but also from a report from the private forecaster Genscape that showed supply in the Cushing, Okla., delivery point fell yet again.
On the 1-hour chart of crude oil we are observing a nice possible reversal taking place, from recent 39.60 lows toward the 41. 30 area, giving us an idea that this whole impulsive decline could now be completed.
Crude oil prices are tumbling as fears about oversupply in an uncertain global economy grabs the spotlight. Even reports of ISIS attacking oil and gas facilities in northern Iraq was not enough to overcome the bearish mood that has owned the oil complex post-Brexit. With a rise of 3 in the U.S. oil rig count and record OPEC oil production and a pathetic U.S. GDP number, it is harder to say when the market will get into balance.