Oil storms higher after DOE confirms inventory draw

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  • The DOE confirmed oil inventory draw during a period of seasonal restocking.
  •  Gasoline inventories declined too, adding to a bullishness of the report.
  •  Oil prices explode higher for a second day.

 
This is a time of a year when the US oil inventories normally increase after the winter period and that what we saw in late February/early March. However last week inventories shrunk by 2.6mb, nearly confirming a shocking API reading yesterday (-2.7mb). Let us recall that the market consensus saw a change of this magnitude but... expected inventory build. 
 
The DOE report confirmed a surprising inventory draw, pushing oil prices higher, despite increased US output. 
Adding insult to injury gasoline inventories declined as well, -1.7mb in this case. This, at least, matches a typical seasonal pattern. Overall, the US oil and gasoline inventories remain significant but in case of oil they return to the 5-year average, a sign of market stabilization. 


The only bearish aspect of the report is continuously rising US output, this time by 26kbd (or annualized 1.35mbd, a truly impressive number). However, investors see inventory stabilization despite this increase as the US imports declines and take this from a bullish angle overall. 
 
Oil prices broke out of a triangle formation and new highs are possible. Source: xStation5
Technically this situation is very bullish as both major oils (OIL and OIL.WTI) broke out of a triangle formation. We pointed at this possibility when Rex Tillerson was dismissed few days ago, arguing that this is a bullish risk for oil prices. Given a pace of price increases, even a hunt for fresh ’18 is possible.