Oil Prices Lack Fundamentals?

 

Fundamentals

Crude Oil futures are extending yesterday's losses after the EIA reported a much larger build than expected. Inventories of Crude Oil jumped to 7.1 million barrels during the week, exceeding analysts' estimates to the tune of 4.5 million barrels. There have also been talks of releasing some strategic supplies both in the EU and the US, which has added to the bearish tone of the market. The last time President Obama released Oil from the strategic reserve, prices actually went higher, which may dissuade lawmakers from following through. Saudi Oil Minister Ali al-Naimi wrote an editorial piece for the Financial Times that was widely read by both traders and the general public, in which he questioned the recent rise in Oil prices, stating there was no rational reason for such an increase. Mr. al-Naimi also assured the West that Saudi Arabia has plenty of spare capacity to meet "any eventuality", a phrase than many took to mean a military showdown between Israel and/or the West and Iran. All of these news items appear at a time when commodities have lost some of their luster among traders, making the market especially vulnerable if negative news items continue to be released.
Technical

Turning to the chart, we see the May Crude Oil contract trading near the lower end of its recent trading range between 104.50 and 110.00. The trading range has been tightening in recent sessions, resulting in a small wedge, or pennant, forming on the daily chart. The preceding move was higher, which gives a slightly bullish bias to the chart formation. Prices are, however, flirting with the lower end of the pattern, which could result in a downside breakout. The 50-day moving average coincides with support at 103.50, suggesting the market may need to gain some momentum to breakout to the downside. Oscillators are currently giving neutral readings.