Yesterday, we got an enormous US crude oil supply build, erasing five weeks of draws. It was coupled with data showing US oil production at the highest ever.
Yet today we have oil up $4.69 to $87.56 and above the post-Hamas attack peak.
I highlight the fibonacci retracement levels from the October rout on this chart with the first bounce stalling out at the 38.2% level and this rally yet to hit the 50% level. But also notice the three-candle reversal over the past three days and the higher low. Those are bullish signals in a market that’s still materially short oil supply due to OPEC+ curbs.
This week we had Russian President Putin endorse OPEC+ and say that cooperation is likely to be extended. But the main driver is Middle Eastern war and the potential for something to spill over into Iran or the region more broadly. There is also an increasing belief that some possible grand bargain between the US and Saudi Arabia to pump more oil and recognize Israel in exchange for US defense guarantees is a unworkable for now.
I tend to think there’s a big ‘weekend risk’ bid and/or short covering underway right now but we won’t know until Monday.
This article was written by Adam Button at www.forexlive.com.