The price of WTI crude oil showed a strong increase by more than 3% yesterday, recovering more than half of the drop since the beginning of this year. After such a powerful jump, a small pullback or flat movement is possible, but there is also an opportunity for further growth.
It is illustrative that such a serious increase in oil prices occurred despite very negative statistics on reserves by the U.S. Energy Information Administration (EIA). Crude oil reserves rose by 19 million barrels last week. Analysts interviewed by Reuters expected reserves to fall by 2.2 million barrels. It was the largest weekly increase in the U.S. crude oil reserves since February 2021 and the third-largest increase in the history of records.
However, traders did not pay much attention to such a sharp increase in reserves. Probably, such statistics are estimated as a one-time phenomenon, which will not become a trend. Furthermore, refineries still have not recovered completely from the frosts of the first half of December, and the average level of U.S. oil imports rose sharply by 2.7 million barrels per day to 4.2 million barrels, which is the maximum since July. It is expected that the impact of these factors on oil reserves will be neutralized in the future.
It is also important to note that crude oil sales from the Strategic Petroleum Reserves (SPR) were only 800,000 barrels last week, compared to a production of 8 million barrels a week earlier. The drop in SPR to its minimum since December 1983, along with the drop in crude oil and petroleum product prices in recent months, reduces the need for continued sales of government reserves. Even if SPR refill will not start in the near future, the stop in sales of oil from the reserve could reduce the pressure on WTI prices by itself.
The Stochastic indicator is not close to the overbought zone yet, and the way to the highs of the beginning of the year near 81.2 is now open for WTI oil.
The following trading strategy option can be suggested:
Buy WTI oil at the current price. Take profit – 81.2. Stop loss – 75.8.
Also, traders may use Trailing stop instead of a fixed Stop loss at their convenience.