U.S. Crude Oil (WTI) traded above the $63 handle on Tuesday, as the American Petroleum Institute (API) reported an exceptionally large draw of 11.19 million barrels of U.S. crude oil inventories for the week ending 5th January, against an expectation of 3.89 million barrels. This is the sixth week in a row that API has reported large draws. Oil prices have also been supported by a year of production cuts led by the Organization of the Petroleum Exporting Countries (OPEC) and Russia. The cuts, which started in January 2017, are scheduled to continue through 2018.
Attention will now turn to the Energy Information Administration (EIA) inventory data due on Wednesday. If the large draw is replicated, it would be the biggest decline in inventories for this time of the year since 1999.
Taking a longer-term view using the weekly chart, WTI price action is comfortably above the 200 week moving average. An inverted H&S pattern indicates a potential long-term target of 84.50. A drop back below the 200MA at 58.50 would be the first signs of a major reversal. A break below support at 54.50 would negate the bullish pattern.
U.S. Crude is seen to be trading in a rising channel and, provided support at 62.0 is held, continued bullish sentiment would target 64.30 followed by 65.80. However, a reversal could stall at Fibonacci retracement and horizontal support at 59.30. A breakthrough here would lead to a test of the 200 Week MA at 58.50.