Crude Rallies Following Robust Inventory Draw

Crude oil prices moved higher on Wednesday running into resistance near the 10-day moving average near $49.27. A larger than expected draw in crude oil stocks was the catalyst for the move as well as a large increase in short position that is setting the market up for a short squeeze.

According to the most recent commitment of traders report released for the date ending July 21, 2015 hedge fund traders added 27k contracts to short futures and options position while reducing 13K from long positions.

The inventory report released on Wednesday was somewhat negative for distillate fuels. According to the EIA U.S. commercial crude oil inventories decreased by 4.2 million barrels from the previous week. Gasoline inventories decreased by 0.4 million barrels last week, and distillate fuel inventories increased by 2.6 million barrels last week. Total commercial petroleum inventories increased by 0.1 million barrels last week.

On the demand front, total products demand the last four-week period averaged 20.1 million barrels per day, up by 3.8% from the same period last year. Over the last four weeks, gasoline demand averaged over 9.5 million barrels per day, up by 6.2% from the same period last year. Distillate fuel demand averaged over 3.7 million barrels per day over the last four weeks, down by 3.6% from the same period last year.

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