EIA Petroleum Report sees a Draw

The EIA petroleum report usually released at 10:30 on Wednesday was released just 4 minutes ago because of the US holiday, the draw was fairly decent size, although consensus is not provided for the petroleum report as it is for the Nat. Gas report which is coming out tomorrow.

Released On 7/5/2012 11:00:00 AM For wk6/29, 2012

Prior Actual Crude oil inventories (weekly change) -0.1 M barrels -4.3 M barrels Gasoline (weekly change) 2.1 M barrels 0.2 M barrels Distillates (weekly change) -2.3 M barrels -1.1 M barrels

Compared to last week's draw of -0.1 mn barrels, this weeks -4.3 mn barrel draw looks significant; SO had a fairly strong response to the report...

Although I do have some open USO call positions at a loss open from former signals, right now I do not favor a trade in USO fro several reasons. For the time being I will leave the existing call positions open, but I don't really want to be involved in new trades unless USO gives a very solid negative signal; I'll explain....

 USO's reaction this a.m. to the EIA report showing a draw.

 USO exhibits one of the many bearish price consolidation price patterns that have (as expected in most cases) turned in to bear traps. This descending triangle is a bearish consolidation/continuation pattern and as price broke below it, you can see volume jumped as retail shorts usually wait for price confirmation, the move back above the apex of the triangle puts these shorts at a loss and as such, in a bear trap.

 The lack of support from the Euro/$USD on the move up is what has me skeptical about a long position in USO which seems to be largely driven by event risk in the middle east (USO vs. Euro-they should move together).

 USO vs the $USD, the normal correlation is an inverse one, so the $USD moving higher with USO moving higher is unusual and not broadly supported.

 The USO 5 min chart gave good signals and made sense, this most recent negative divergence in to rising prices also has me skeptical as oil's move up seems to be largely contingent on unpredictable event risk.

 USO 15 min chart also does not lend support to USO's move higher.

Nor does the 30 min chart.

I would consider closing the long calls and opening a short/put position if we were to see some very negative signals develop