Crude Oil Price Update – Volatility Expected with Release of EIA Report

September West Texas Intermediate crude oil futures are trading steady-to-lower shortly ahead of the regular session opening and today’s U.S. Energy Information Administration’s weekly inventories report at 1430 GMT.

Prices broke sharply on Tuesday on concerns over OPEC’s ability to control production after reports showed an increase in output in July. Prices were also driven lower by an American Petroleum Institute report that showed an inventory build instead of the expected drawdown.

Today’s EIA report is expected to show a 3.8 million barrel draw, but this could change ahead of the report because of the API data.

Look for crude to weaken further if the EIA report shows an inventory build or increased production. We should see a strong short-covering rally if the report shows a drawdown.

Technical Analysis

The main trend is up according to the daily swing chart. However, yesterday’s closing price reversal top signals a shift in momentum to down.

A trade through $50.43 will negate the closing price reversal top and signal a resumption of the uptrend.

A trade through $48.37 will confirm the closing price reversal top, leading to a possible 2 to 3 day break.

On the downside, support levels come in at $48.52, $47.92 and $47.32. A trade through $45.40 will change the main trend to down.

Forecast

Based on the early price action, the direction of the market today is likely to be determined by trader reaction to $48.52.

If $48.52 holds as support then look for a rally into $48.90 and $49.44. Overcoming $49.44 will put the market in a stronger position. This could generate the upside momentum needed to challenge the top at $50.43 and the long-term downtrending angle at $50.91.

If $48.52 fails as support then look for further weakness into $47.92, $47.32 and $47.15.