Crude oil rose yesterday, despite data from earlier in the week showing rising crude inventories in the US. Prices rose sharply after the US House of Representatives passed the budget resolution, paving the way for Trump's tax reforms. As tax reforms look more likely, inflation expectations are rising thanks to Trump's economic agenda which includes fiscal spending, a larger military budget and healthcare reforms. In an earlier commentary, we wrote that rising inflation expectations can help drive crude oil prices higher. Beyond US news, crude prices have also been supported by earlier comments from Saudi Arabia's energy minister who re-affirmed a commitment to ending the global supply glut. Bloomberg is also reporting that Iraq has resumed crude exports from the Kirkuk region after the regional government backed down from its independence referendum.
WTI is currently trading just above $52.60. Brent crude is currently above $59.20. After entering overbought conditions two weeks ago, crude oil is now once again approaching overbought conditions.
Looking at US crude oil stocks, the most recent EIA figures (October 25) showed falling crude oil stocks and rising gasoline inventories. While crude oil inventories unexpectedly rose (+0.86m vs. -2.49m expected), gasoline stocks (5.46m vs. -1m expected) and distillate stocks (-5.2m vs. -0.5m expected) were down sharply . US crude inventories have been falling for the past few weeks. Looking at reactions in markets, crude oil prices were steady following the EIA report.
After running out of steam following rising US crude inventories, we are downgrading crude oil to neutral. After looking overbought in early October, both Brent and WTI are now approaching overbought conditions again. This is based on technical indicators on the daily chart.
Thanks to ongoing crude oil strength, we are upgrading the commodity to bullish in the medium-term. Prices are rising as crude stocks continue to fall around the world, despite rising US exports that are driving concerns regarding future supply. Looking at various technical indicators on the weekly chart, Brent crude is looking overbought while WTI is trading within normal conditions.