The EIA reported that crude inventories increased by 4.1 million barrels (+1.5MM expected), gasoline increased by 5.0 million barrels, and distillates increased by 8.4 million barrels. It was an ugly inventory report, made all the worse by: (a) the recent DOE announcement of the sale of 8 million barrels from the Strategic Petroleum Reserve, (b) news that some OPEC members have already been caught cheating, and (c) data showing that US production continues to surge.
Naturally, oil prices sold off sharply on the EIA data. Or, did they? CL plunged about 0.75 in the first 5-10 minutes, then began a preposterous rally that continues even this morning. After shedding 6.4% since last Friday, CL rallied 5.5% on the worst news in months. What gives? Could it have anything to do with the bearish Head & Shoulders Pattern that SPX completed when the EIA report was released? SPX bounced at our initial downside target. Yet, we remain short, with our downside targets unchanged.
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