Brent Crude – Oil enters resistance as EIA inventories fall

• Brent crude oil prices rose on Wednesday due to a bigger-than-expected drawdown in US crude inventories.
• The market is anticipating further inventory reduction, leading to potential price support in Q4.
• Technical analysis suggests bullish continuation with a key resistance level at 87.90 and potential move towards 90.00 if this level is breached.

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Brent Crude enjoyed a mixed day on Wednesday as European session losses were erased by EIA data. U.S. crude oil inventories fell more than expected in a move many had anticipated as the U.S. summer holiday period heads into action.

Crude oil inventories fell by 12.2 million barrels, bringing the total to 448.5 million barrels for the week ended June 28, according to the EIA. That drop significantly exceeded analysts’ expectations in a Reuters poll, which had predicted a draw of 680,000 barrels.

This appears to confirm the recent optimism of market participants, suggesting that a reduction in inventories towards the end of the summer is likely to tighten the market and support prices as the fourth quarter approaches.

The chart below shows the US EIA inventory numbers based on the first real release before revisions (yellow line). (blue line) shows the expected inventory count based on Reuters polls.

Source: LSG (click to enlarge)

US and oil rig data to follow

Today is likely to be a quiet one, with the US Independence Day holiday and the UK election. Liquidity could prove to be an issue and therefore markets may experience sideways price action.

Friday could be a successful end to the week with US NFP and jobs data and US markets rebounding. Baker Hughes oil rig data is also scheduled to be released and could also have an impact on oil prices ahead of the weekend.

Source: For all market-moving releases and economic events, see MarketPulse Economic Calendar.

Technical Analysis of Brent Crude Oil

Oil prices hit resistance at 87.90 on Tuesday and looked poised for a pullback. However, yesterday’s EIA data helped push oil prices back to the key resistance level while printing a hammer candlestick on the daily time frame.

This makes for an interesting day with bullish continuation and a break of 87.90 finally opening the door for an assault on the psychological 90.00 level. The recovery since early June has been steep with very little pullback, which continues to concern me.

For now though, price action and EIA data support a move higher. Given the low liquidity environment expected today, there is a chance that oil will not close above the 87.90 resistance level, in which case tomorrow’s NFP data could serve as a catalyst for either a push towards 90.00 or a pullback to the 85.00 handle.

Brent Crude Daily Chart, July 4, 2024

Source: TradingView.com (click to enlarge)

Key levels to keep in mind;

Support

• 86.21
• 85.00 (confluence area, MA, Psychological level and previous support)
• 83.70

Resistance

• 87.90 (last week’s highs)
• 90.00 (psychological level)
• 92.50

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