Insights 
VT 
The latest EIA report reveals a reduction in crude oil inventories by 2.392 million barrels, surpassing the anticipated 1.863 million barrels decrease. Gasoline inventories also declined, with a fall of 1.236 million barrels against an expected 2.154 million barrels. Distillate stocks saw a drop of 1.786 million barrels, despite predictions of an increase of 0.885 million. Furthermore, Cushing experienced a drawdown of 0.838 million barrels, contrasting with last week’s rise of 0.419 million.
Crude Oil Pricing Trends
Currently, crude oil is priced at $63.82, marking an increase of $0.57. Technically, prices have moved above the 100-hour moving average at $63.72. Although prices briefly dipped below this during trading, they rebounded when buyers emerged at the 200-hour moving average. Earlier, prices fell below the 200-hour moving average but gained strength with the inventory data. The 100-hour and 200-hour moving averages are now important benchmarks for traders. A drop below the 100-hour moving average could shift the momentum, as buyers support the 200-hour average and sellers challenge the 100-hour threshold. Currently, buyers seem to have an advantage in maintaining the recent upward trend.
We are seeing a bullish signal from this week’s inventory data, with crude inventories falling more than anticipated. The surprise drawdown in distillates, against expectations of a build, is particularly supportive for prices. This fundamental strength is reflected in the price action, which has now reclaimed key short-term levels.
Looking ahead, we must factor in the heightened risk from hurricane season as we approach September. Current meteorological reports show a tropical depression strengthening in the Gulf of Mexico, which could disrupt the 1.7 million barrels of daily production in the region if it intensifies. This supply-side risk was not fully priced in before today’s report, and we remember how Hurricane Ida shut down production for weeks back in 2021.
However, we should be cautious that the gasoline inventory draw was smaller than forecast, which could signal the end of peak summer driving demand. Recent data shows gasoline consumption has hovered around 9.1 million barrels per day, but we typically see this number decline by 5-7% as we move into the autumn months. This could act as a headwind for prices, creating a battle between supply fears and softening demand.
Opportunities for Traders
This technical rebound, combined with fundamental tightness, is reminiscent of the price action we saw in the fourth quarter of 2023 before a significant rally. For derivative traders, this could be an opportunity to consider buying near-the-money call options for October expiration to capture potential upside from supply disruptions. Using call spreads would be a prudent way to define risk, especially with the 200-hour moving average providing a clear technical stop-loss level.
