HardAssetsInvestor

Written by Sumit Roy  |

October 19, 2011

Crude Oil Report: Brent Hovers Near Technical Resistance As Inventories Plunge, Wiping Out Surplus

Details

Tight supplies should keep upward pressure on crude oil prices.

The Department of Energy reported this morning that in the week ending Oct. 14, U.S. crude oil inventories decreased by 4.7 million barrels, gasoline inventories decreased by 3.3 million barrels, distillate inventories decreased by 4.3 million barrels and total petroleum inventories decreased by 10.9 million barrels.

Crude oil prices were narrowly mixed after the latest EIA figures, with Brent near $110/bbl and WTI near $88.

Brent continues to face resistance at the downward trend line that extends back to April. We expect that strong fundamentals will eventually spur prices to break above the trend line and make their way toward the next key levels of resistance at $120 and $127.

At the same time, the S&P 500 is in the process of breaking a key technical resistance level of its own near 1220.

Meanwhile, analysts at Goldman Sachs say that the record spread between WTI and Brent could narrow significantly next year:

“Rail capacity should increase rapidly during the first half of 2012, which we expect will be enough to begin alleviating congestion.”

“Weak WTI prices are discouraging the increasing oil supplies from Canada and North Dakota from moving from the Midwest down to Cushing along the Spearhead pipeline, forcing them down the Mississippi to the Gulf Coast on barges from Wood River.”

Turning to this week’s EIA inventory figures, total petroleum inventories in the U.S. decreased by 4.7 mmbbl, against the five-year average of a 0.7 mmbbl withdrawal. In turn, the surplus over the five-year average fell to 1.2 mmbbl, or 0.1 percent.