It looks as if the oil bears have gotten ahead of themselves and were quick to cover shorts as Wednesday’s price action saw huge momentum and strength in the black gold. Oil prices shot up in the face of recent rising inventory reports to close back above the $45 handle at the close of American trading hours on Wednesday. So what are some possible catalysts for the oil spike?
Early Wednesday, the U.S. Energy Information Administration reported an increase of 3.4 million barrels in crude supplies for the week ended October 23. That was well above the increase of 1.6 million barrels forecast by analysts polled by Platts, but analysts surveyed by The Wall Street Journal, where a lot of traders and algos have their attentions tuned into, looked for a bigger 3.7 million-barrel rise and the American Petroleum Institute Tuesday predicted inventories rose 4.1 million barrels.
“It looks like the majority of shorts got ahead of themselves and were looking for another high single digit build that didn’t pan out, so they all ran for the door at once to unwind,” Tyler Richey, co-editor of the 7:00’s Report relayed to financial news website MarketWatch.
“With traders seeing a series of huge builds over the last 4 weeks or so, and expecting another one, the market was rather oversold going into the report,” concluded Mr. Richey.
More supportive price data included crude oil imports down about 439,000 barrels a day for the week but with petroleum-product stockpiles falling and gasoline supplies shedding 1.1 million barrels, matching the expectations of analysts polled by Platts.
If the major snap-back in oil has any legs is up for speculation, and continues to depend on the slew of macroeconomic data in the weeks and months ahead. When oil and other commodities such as gold see major price action this usually bodes well in terms of volumes for venues offering futures contracts and brokers offering CFD and spot oil price instruments.
USD/CAD trading also picks up when oil gets jumpy, the Canadian dollar benefited from today’s oil spike and registered a monster 150 pip range on Wednesday to touch 1.3100 from a high of 1.3250 earlier in the day before settling around 1.3180.
See below a daily chart for WTI Crude Oil:
Crude Oil WTI December 2015 (CLZ15) contracts closed at 46.17 (+2.97, +6.88%) on the day. Courtesy: BarChart