Last night we saw a massive or much larger than anticipated draw in oil inventories via the API data, but it "seems" that oil fell overnight on the Iran deal, which has been used as an excuse for oil falling every day, even though a deal does not bring Iranian oil to market, a lifting of sanctions does and to lift sanctions, a deal must be verified, which is why Iranian oil is a good 6 to 12 months from hitting the market above and beyond the sanctions. In other words, it's not really an event of any immediacy.
However a lower base building process in USO is and something we have been watching and looking for as price got a little ahead of itself, then it came down as we expected. The current speculative USO long position is for a bounce/gap fill, not a long term trade which is something I'm very excited about and looking forward to so long as the charts continue to point in that direction.
So picking up where we left off with the API inventories in last night's Daily Wrap, today the EIA/DOE oil inventories were out at 10:30 a.m. and confirmed the API data's larger than expected draw after 2 weeks of builds.
The EIA consensus was for a draw of 1.9 mn bbl and came in at a draw of 4.346 mn bbl. In addition, production fell -0.44%.
Looking at the USO charts and some of the Oil Futures (Brent), my plan is to stick with the original plan which is to keep a fairly speculative size position (long) open for a bounce/gap fill and then look at a potential USO short for a move back down toward the bottom of the base's range that has been in effect for most of this year; this is where base building for a primary uptrend reversal in crude would be done. If we get confirmation of accumulation down near the lower end of the base, we'll have an interesting longer term long trend position, if not, then we aren't forced to take any action and really have nothing to lose.
This daily chart of USO shows the range area approx. between $16.25 and $20.25 with #1 being the anticipated near term (speculative long position) bounce/gap fill. #2 would represent the short position target I'd like to look in to after a bounce/gap fill and the area where we "should" see accumulation which finishes building this base that has been in place most of 2015 and #3 would represent the primary trend reversal from last summer's downtrend leading to a flat trend through 2015 as seen above. Of course as always, we'll be looking for objective/overwhelming evidence of accumulation while most traders will likely be looking for oil to fall further.
This is the 1 min intraday chart and it looks to me that there's an accumulation area in the $17.50 area or so.
I did say when opening the speculative long USO position that I would consider adding to the trade if it pulled back a bit more to the $17 area and again confirmed accumulation as that would suggest a bigger base and a more stable/larger bounce, otherwise I'm fine with things the way they are and would be looking for a probable full size USO short after a bounce to fill the gap above.
Again on a 2 min chart there seems to be an accumulation zone around $17.
This is the longer term 5 min chart showing the anticipated pullback in USO from the $21+ level, above the range and the shorter term nature of the current positioning in USO for a bounce/gap fill.
This shows the accumulation at the lower end of the large range in March that led to the break above the range, although it didn't hold and we didn't expect it to, we expected it to come back down which it has done.
As for Crude futures...
Again there seems to be an accumulation range at lower prices in the very recent pullback range on this 5 min chart.
Doing away with the noise...
This close up of a 2 hour chart shows a high probability bounce/gap fill. We'll deal with the next trade set up once we get a resolution of this one and then there will be another after that.
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