NewsCrude surrenders the gains on high inventories and strong dollar
AnalysisCrude oil futures traded lower Thursday morning following the strong rebound yesterday on President Barack Obama’s economic support, good housing data, and the Federal Reserve’s pledges to keep their monetary policy steady. Nonetheless, the inventory data weighed on black gold today offset the optimism in the markets.

Crude oil futures for March settlement rallied nearly 1.30%, the most in nearly two weeks, helping crude snap out of its six-day bearish rout to settle at $87.59. The market sentiment was strong yesterday following Obama’s State of the Union Address which uplifted the outlook for growth in the world’s largest economy, especially as he called for lower corporate taxes which supported expectations for higher earnings and demand.

The good housing data alongside the FOMC steady monetary policy helped crude oil continue the rally, especially as greenback slipped to an 11-week low yesterday.

Nevertheless, the gains did not extend into today for crude oil, where March contracts surrendered most of yesterday’s gain sliding from opening levels of $87.54 to currently hover around $86.70 around its lows, leaving the high intact at opening hours of $87.54.

The positive sentiment was offset by investors’ reaction on the supply data reported from the US yesterday, where crude inventories inclined nearly four-times more than expected. The Energy Department reported yesterday a 4.84 million barrel buildup in crude inventories to 340.6 million in the week ending January 21.

Surely the sentiment in the market remains jitter, especially as forecasts for improving demand on oil is countered by the recent comments from OPEC ministers signaling their intention to raise the production quota to meet demand.

The data is positive and especially from the US economy which is helping offset the speculation of a tighter Chinese monetary policy. We still have good data on queue for today, where Durable Goods orders are expected to have risen 1.5% last month after 0.3% drop in November, while pending home sales are expected to rise by 1.0% following the surge in New Home Sales yesterday by 17.5%.

We expect the volatility to prevail, especially as crude was affected by the dollar’s rebound today which covered nearly yesterday’s entire drop. The index gauging the dollar’s performance rose to the high of 78.09 from the low of 77.63 and currently trading bullishly around 77.98.

With the data today and the GDP figures tomorrow and still more earnings on the queue crude is expected to continue to fluctuate heavily.  With the negativity on Stochastic and the valid bearish harmonic butterfly the negativity continues to be seen on crude and if the conditions continued to warrant the decline with the strong dollar and fears over the outlook for demand and increased supply crude will likely retreat back towards $84 areas.