Crude Oil saw a dramatic selloff yesterday based on three major factors:
- A report in the WSJ that the Fed might not be as accommodative as the markets have been expecting.
- A report from Goldman Sachs giving a sell signal in Crude Oil,citing poor refinery margins. However, they did say a correction could be temporary. Goldman has been very a prominent (and prescient) bull, so their opinions carry weight.
- The resumption of production in the Gulf of Mexico by Pemex.
- A forecast for a gain in both Crude Oil and product inventories in this week’s data.
The first big surprise today was the US inventory data, which showed a big drop in Crude Oil stocks, while ignoring builds in the products. This drove Crude Oil sharply higher, initially pushing it back to the old contract high. The balance of the day will likely be a watch and wait session until the FOMC announcement at 1:15 Chicago Time. An accommodative posture from the FOMC would be bullish for Crude Oil, as stronger economic growth fosters demand.
Today’s action fits into a bullish outlook. Yesterday’s selloff stopped at roughly a 50% retracement of the past week’s rally, and trend indicators have not yet turned down. Momentum dropped to give a buy signal yesterday (the bottom section of the chart) and it held around yesterday’s low.
A note of caution may be in order for the balance of today’s session, however. Today’s advance stopped at the current contract high, raising the spectre of a selloff by bulls disappointed at the lack of new highs. The big factor for the balance of the day will be the FOMC announcement, with 9370 and 9260 (the post-inventory report low) as the key prices to watch.
