Where is the Oil price breakout heading?

Crude oil prices have been on an interesting roller coaster lately, as news from OPEC and other key oil producers continue to shake up markets. The latest mover of oil prices is the American Petroleum Institute (API) report released yesterday. Leaving us wondering where is the Oil price breakout heading?

19th October, AtoZForex – The report from API showed American crude oil supplies have plunged by 3.8 million barrels in the last week. A huge divergence from last week’s report from the  Energy Information Administration (EIA), which showed a large stockpile of 4.9barrels. Last week, oil prices hit the year high at $53.96 per barrel and $52 per barrel for Brent and WTI respectively.

Speaking to Bloomberg, Michael Hiley, head of OTC energy trading at New York-based LPS Futures said:

“People are stepping back and saying, what next? OPEC has to prove it’s really going to do something. They’ve talked the talk, now they’ve got to walk the walk.” Adding that “he wouldn’t be surprised to see us continue this choppy-type price action and go nowhere.”

Where is the Oil price breakout heading?

Attention now turns to the latest report from the EIA due today. It is expected to show a 2.9M rise in the number of barrels of crude oil held in inventory by commercial firms during the past week. The EIA recently changed its reporting mode, as it will “no longer include crude oil lease stocks in the U.S. total commercial crude oil inventory data series.”

Crude-oil lease stocks are the portion of oil stored in tanks at U.S. sites where producers drill on leased land. The EIA explained that these lease stocks are not yet available for commercial use. Most times, operators don’t count them as production until they are transferred off the lease by pipeline, rail or trucks to tank farms for storage. Hence, the new exclusion from the count.

Brent Technical outlook

Brent daily chart Brent daily chart

Having bounced off a new year high reached last week, Brent has gone into a consolidation as it struggles to break. At the moment, prices have consolidated, forming into a flag, with a break on either side promising to be major. A bullish breakout could take prices all the way up to $60. While a bearish breakout, on the other hand, could prompt prices all the way back towards $48. It is, therefore, safer to wait for a confirmed break of the flag boundaries before following.

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