WTI trims weekly gains below $40.00 ahead of EIA inventories

• WTI snaps two-day winning streak amid multiple failures to cross $40.00.
• Concerns that OPEC+ could ease production cuts confront the US-Iran tension.
• The quarter-start silence takes clues from mixed risk-catalysts and the US dollar pullback.
• EIA likely to follow API’s footsteps, US data/events may offer further direction.

WTI drops to $39.70, down 0.33% on a day, during the pre-European session on Wednesday. The oil benchmark slips from the five-day high, not to ignore the disturbance to the previous two-day gains, at the start of the third quarter (Q3). While the energy-specific wires are mostly empty during the Asian session, risk reset seems to be the reason behind the quote’s latest weakness.

While stepping back from the weekly top, the black gold ignores private stockpile data from the American Petroleum Institute (API). The industry report suggests that the US stockpiles marked heavy depletion of 8.156 million barrels during the week ending on June 26 versus the previous week’s addition of 1.749 million barrels.

It should also be noted that the recent escalation in the Washington-Tehran tussle also failed to underpin the oil prices today. After Iran issued a warrant against US President Donald Trump, American Secretary of State Mike Pompeo tried to extend the sanctions on the Arab nation that are expiring soon. However, China joined others to raise the bars in doing so at the United Nations virtual meeting. Furthermore, news that Saudi Arabia deepens production cuts to were also largely ignored. Additionally, China’s upbeat Caixin Manufacturing PMI became another failed catalyst amid the Sino-American tension and the coronavirus (COVID-19) woes.

Talking about the negatives, Reuters mentioned that the Organization of the Petroleum Exporting Countries (OPEC) and Russia could ease the output cuts in August seems to have dimmed the impact of API inventories.

Moving on, the official oil inventory data from the Energy Information Administration (EIA), expected -0.95M versus 1.442M prior, could offer reasons for the oil buyers to step in. If ignored, the risk-off mood and the recent pullback of the USD might extend the energy benchmark’s latest weakness.

Technical analysis

Tuesday’s bearish candlestick formation, called the Hanging Man, on the daily chart suggests further weakness in oil prices. In doing so, the five-week-old support line, at $37.90 now, might gain the bears’ attention. On the flip side, a clear break above the previous day’s high near $40.10 will defy the candlestick formation and trigger the commodity’s recovery moves towards June 08 top near $40.60 ahead of challenging the last month’s peak close to $41.65/70.