Crude Oil Price Looks EIA Report As Pipeline Shutdown, India Fog Outlook
Crude Oil, Colonial Pipeline, EIA Inventory, Covid, India, Rising Wedge – Talking Points
- Colonial pipeline closure remains question mark for crude oil
- The big draw in the EIA inventory printing reflects Advances in vaccination in the United States
- Crude oil near handle 65 in a rising wedge pattern
Crude oil appears to be stagnant so far this week, with prices hovering just below the 65 mark. The lack of volatility in energy prices comes despite a major supply shock. Over the weekend, a major fuel pipeline, stretching from the Gulf Coast to the Northeast Atlantic, was shut down due to a ransomware attack. It also forced the US government to declare a state of emergency in many east coast states.
Colonial Pipeline, the company that manages the crossing – which transports about 2.5 million barrels of refined petroleum products per day – aims to restore operations later this week. However, a big question mark hangs over the timing, and the longer the pipeline is shut down, the greater the impact will be on energy prices in the United States.
The emergency order implemented by the Biden administration eases restrictions on alternative delivery methods to mitigate the impact of the shutdown, but it is not possible to fully offset the supply gap with the current infrastructure. The pipeline cyberattack is the second major supply shock to energy markets this year after the Suez Canal was blocked. Year-to-date, crude oil prices have risen more than 30%, with May on track to extend April’s gains.
The global economic reopening after the Covid pandemic continues to push bullish energy into the oil markets. As major economies continue to reopen as vaccination rates improve, oil-intensive industries will come back online, boosting demand – at least that’s the prevailing rhetoric. The situation in India, although it has not yet had a major impact on global sentiment, puts this thesis at risk. In fact, the World Health Organization (WHO) has reclassified a variant of Covid in India as a ‘variant of concern’.
That said, energy traders will be watching the situation in India closely as the fallout from the worsening situation may start to seep into market sentiment, which would likely present a headwind for oil prices. Alternatively, a bright spot for Covid’s image emerged today when the United States Food and Drug Administration (FDA) approved the Pfizer-BioNTech vaccine for use in children ages 12 to 15. The US regulator’s move is seen as a boon to the country’s vaccination efforts, which is already ahead of most of its comparable economies.
Advances in vaccination in the United States – which now see nearly 35% of the total population fully vaccinated, according to the Centers for Disease Control and Prevention (CDC) – have heightened optimism for a full reopening this summer. In fact, U.S. oil demand has already started to reflect this optimism, with the latest Energy Information Administration (EIA) inventory update showing a drop of 7.99 million barrels of storage for the week. ended April 30 – the biggest draw since January.
The next EIA update will take place on May 12, according to the DailyFX Economic Calendar. It is important to note that the effects of the pipeline shutdown will not be reflected until the release of next week’s EIA. The outcome of the shutdown is expected to show a decrease in appetite for energy products due to hampered delivery to affected states. That said, it may be particularly important in next week’s post to notice supply changes within their respective Oil Administration for Defense Districts (PADD).
Technical breakdown of crude oil
Crude oil has fleshed out a Ascending corner pattern since early April, although the support line technically requires an additional reactionary touchpoint to validate the model. Nonetheless, the price action represents a phase of upward consolidation and may ultimately lead to a reversal from the prevailing uptrend.
Currently, the 9-day Exponential Moving Average (EMA) appears to be supporting the price, a trend seen recently in the wedge pattern. MACD and the Relative Strength Index (RSI) are trending lower, but the 38.2% Fibonacci retracement appears to provide an additional layer of support. Alternatively, a higher move can see resistance at the 23.6% Fib level, which almost coincides with the psychologically significant 65 grip.
8 hour crude oil chart
Chart created with TradingView
CRUDE OIL NEGOTIATION RESOURCES
— Written by Thomas Westwater, Analyst for DailyFX.com
Contact Thomas, use the comments section below or @FxWestwateron Twitter