Will bearish inventory report derail oil strength?

January 25, 2017 8:10AM CST

The EIA released the weekly inventory report this morning at 9:30am, and it was remarkably bearish.  The numbers were as follows:

Crude oil build +2.84 million barrels, expected up 1.5 million

Gasoline build +6.8 million barrels, expected up 900K

Distillates build +.08 million barrels, expected down 560K

Existing stocks are at their highest level at this time of year over the preceding 5 yrs.

The knee-jerk reaction on the release of the report was an immediate sell off.  However, buyers just as quickly swept in to buy oil and gas off their lows.  By the end of the day’s session, oil and gas have drifted near their post inventory release lows.  The back and forth the energy markets have been experiencing over the last month, is a tug of war between what looks like bearish supply growth, and bullish production cuts by OPEC nations.  For now crude has maintained its post OPEC announcement rally to the $52-$56 area.  A breakout is bound to happen depending on which narrative grabs control of the market.  Although, the supply side makes a compelling case for lower prices, I believe that OPEC cuts will ultimately drive prices toward the $60 mark.  Many large banks are calling for $50-$60 range in crude for the year.

RJO Futures | 222 South Riverside Plaza, Suite 1200 | Chicago, Illinois 60606 | United States
800.441.1616 | 312.373.5478

This material has been prepared by a sales or trading employee or agent of RJO Futures and is, or is in the nature of, a solicitation. This material is not a research report prepared by RJO Futures Research Department. By accepting this communication, you agree that you are an experienced user of the futures markets, capable of making independent trading decisions, and agree that you are not, and will not, rely solely on this communication in making trading decisions.