Oil prices rallied throughout most of the NY session as Russian and Saudi Arabian oil ministers discussed a potential oil production freeze. The key comment that drove commodities higher was that Iran’s cooperation was no longer necessary for Saudi Arabia to comply with the other OPEC members on a production freeze.
Oil extended its gains following the DOE short-term outlook. The report suggested that the pace of inventory builds is expected to slow to an average of 1.4 million barrels per day in 2016 and to 0.4 million barrels in 2017. The EIA also saw global consumption of petroleum and other liquid fuels to grow by 1.2 million b/d in 2016 and by 1.3 million b/d in 2017.
After the US close, oil prices pulled back from their session highs and fell back below the $42 handle following the weekly API oil inventories release. API’s crude rose to 6.2 million, a surprise gain in the inventory build.
Price action on the US oil daily chart shows the near 13% rally that has taken place so far in 2016. The recent leg up has also taken price back above the 200-day SMA for the first time since July 2014. A bullish stance may remain in place leading up to the April 17th production freeze meeting in Doha. Further upside may target the $47.00 zone. It is around that area that price could form a bearish ABCD pattern. As long as we do not see a major rally with the US dollar, price may remain above the $40 region. If we see a major reversal, key support will come from the 50-day SMA which currently trades at $35.54 level.
The trade: Buy US oil at $41.25, with a stop loss at $39.25 and take profit at $47.25. The risk/reward ratio is 1:3