Crude Stages Reversal Post-Weekly EIA Report

Front month crude futures briefly touched $44.52/barrel following the weekly oil inventories report from the EIA which contained the following sentence:

“At 406.7 million barrels, U.S. crude oil inventories are at the highest level for this time of year in at least the last 80 years.”

That certainly doesn’t sound bullish but instead of nose-diving, crude oil began to reverse higher:

CL_1-minute

This is at least the 4th time in the last week that crude has tested into the $44s successfully and it marks the 2nd higher low since the $44.20 low printed on January 13th:

CL_Hourly

Conditions are ripe for a short squeeze given that the news doesn’t seem like it can get much worse and price doesn’t seem ready to make a lower low. Key upside levels are $46.50 and $49.00, while a breach of $44.20 would open the door for at least another 10% of downside.

The current dynamic in crude oil markets reminds of a famous quote from legendary investor Howard Marks:

“When everyone believes something is risky, their unwillingness to buy usually reduces its price to the point where it’s not risky at all. Broadly negative opinion can make it the least risky thing, since all optimism has been driven out of its price.”