Oil prices edged higher on Wednesday, after the weekly US EIA inventory data showed yet another drawdown, signaling that the oil market continues to rebalance in a gradual manner. In addition, a tropical storm in the Gulf of Mexico, which is expected to strengthen into a hurricane tomorrow, probably boosted oil prices further as it threatens to disrupt production in the US. Considering that a large portion of US oil production is refined near the Gulf, if this storm does intensify, then we could see further gains in oil prices. That said though, even in case prices spike higher as a result of this weather phenomenon, we would expect any such supply-induced gains to remain relatively short-lived. Unless there is some notable damage to US oil-refining infrastructure, weather factors are unlikely to disrupt supply for long.
WTI traded higher on Wednesday after it found support at 47.50 (S1). Nevertheless, the advance was stopped by the 48.55 (R1) level and then the price retreated somewhat. Given that oil is still trading above the upper bound of the downside channel that contained the price action from the beginning of February until the 25th of July, we still see the possibility for another leg up. A break above 48.55 (R1) could confirm the case and may initially aim for our next resistance of 49.30 (R2).
Having said that though, we have to repeat that we don’t expect any possible near-term gains to lead into a major healthy uptrend. We still believe that the range between 51.50 (R3) and 55.00 is the area where US shale producers may be attracted to increase production, something that may put a lid on any possible future gains.
