In light of the global economic uncertainty that arose out of the Brexit vote last week, the fact that crude oil currently trades within 5% of its recent highs is pretty impressive. Add to that the fact that crude has remained firm despite the strength in the dollar, and it only reinforces the resilience that the commodity has shown. That being said, the chart does show a bit of a downtrend in the very short run, so either crude will hold its 50-DMA and make a higher high or the 50-DMA will fold under pressure. Whatever the resolution, we should find out in the coming days.
One thing working in crude’s favor is the fact that inventories have been declining and following the script of their typical seasonal pattern. According to this week’s inventory report from the DoE, crude oil inventories fell by 4.053 mln barrels compared to estimates for a decline of just 2.5 mln barrels. It was also the sixth straight week that inventory levels declined on a week to week basis. The chart below shows historical crude oil inventory levels by week for 2015 and 2016 as well as the average going back to 1983 and the last ten years. While stockpiles are well above average no matter how you look at it, we would note that based on current levels they are now 49.8% above their historical average for this time of year. That’s still a huge difference, but earlier this year inventories were nearly 54% above their historical seasonal levels. You have to start somewhere, and the current declines in excess inventories are a step in the right direction for crude bulls.