Thoughts from the Trading Floor

Small bounce

After dipping below the daily double bottom at $86.06 on Thursday (making a low at $85.61) Oil has recovered some of the losses seen over the past couple of week with a bounce up towards the $90.00 resistance level. We are still well below the $92.00 support that held throughout March and early April though.

Not much news flow

There has been a real lack of news flow since last Wednesday and as a result Oil has just had a steady grind upwards as some take profits from the recent down move and other risk markets gain some traction to the upside. Volumes have been light and it will likely be important now which direction the next move is on higher volumes. This should give an indication of the general sentiment of the market.

Risk-on?

Whilst Oil has bounce nearly $4 from this week’s lows it has been rather a muted move in terms volumes but at the same time Equity markets (especially in the US) have powered back up and even the Dollar remains weaker across the board. Is this the precursor for another leg up in risk markets? Spoo futures have got back to within 15 handles of their all time highs and are now in a position to have another look. Oil is undoubtedly stuck between strong equities and weak commodities but if equities continue to bounce again then we expect Oil to start moving with them.

Technical Outlook

After a false break of the daily double bottom (coupled with the strong bounce from the $85.40-86.25 key support area) the outlook in the short term is bullish. $90.00 is overhead resistance immediately above and through here we should see $91.20 tested. Next in line is $92.00 which had previously offered good support through March and early April. Near term support lies at $87.50-60 before the broader, key support zone mentioned just now.

Inventory Data

Last night the API reported drops in both the Crude Oil and Gasoline inventories at 845k and 2700k barrels respectively and though the market barely reacted, we have failed to drop significantly below the price where we were trading before the release. Expectations for the DOE release later are for a build in Oil inventories of 1750k barrels and a flat release from the Gasoline inventories.