As mentioned at the weekend, the yearly VWAP is critical to this week’s trading action. Oil inventories will be the opportunity to test this level, to determine the price action in weeks ahead.

EIA Inventory Data Overview

This afternoon we have the EIA data being released. Last night the API crude oil stock data showed a draw of -2.100M, if the EIA data is in line with that, then it will be bullish in comparison with an expected crude oil inventory number of +2.167M. ooking at the other data due to be released this afternoon from the EIA, weekly distillates stock have an expectation of -1.280M

In terms of trading the oil inventory numbers, I don’t. Well, at least no in the first 30 minutes after release of the data, as it is usually a random and volatile time to be in the markets. It’s important not to look at just the data, but also how the market reacts to it. In general I approach the data release in the following way :

  • A bullish market, with bullish data (large unexpected draw). I’d be looking for good long entries
  • A bearish market, with bearish data (large unexpected surplus). I’d be looking for good short entries
  • Bearish market, with bullish data. I’d be looking to see if the data is enough to pull the market out of the declines, or whether the declines are strong enough to continue
  • Bullish market, bearish data. Vice versa to above. I’d be looking to see whether the data is enough to pull the market out of its bullish action
  • Range bound market, bullish or bearish data. Looking to see if the market stays within, or breaks above/below the range

Essentially I’d be looking at the price action once the data is released, not just trading the number itself. The data can almost be irrelevant in some cases, where the market has already decided where it wants to go.

Chart analysis

As confirmed in this weekends post, the VWAP has acted as significant support for the week so far. The chart below shows a US crude oil (CL) chart for the year so far, with the pink VWAP and its associated standard deviation lines either side. The big red arrow is pointing at the VWAP (previously highlighted at the weekend), and it can be seen that the market has been hovering above this for the week so far.

Indeed the market has been range bound just above this VWAP, offering some excellent trading opportunities for the week so far.

US Crude Oil (CL) chart for 2018. The pink line is the Volume Weighted Average Price (VWAP)

Looking at the week so far, as mentioned it has been range bound, using that yearly VWAP as support

The chart below shows the market bouncing of the $71 level all week. Never being able to get a clean break away, or a move below $71.

Hence how the market digests this afternoon’s inventory data will be important. After the data release there will be a large amount of volume, and might be the time when we see $71 broken, for a strong move to the downside. However if $71 (and the yearly VWAP) hold this afternoon, then that is bullish for the weeks ahead. The stronger directional move would be a break of $71 and the yearly VWAP, that’s where the action could be, if it happens.

This weeks US crude oil chart (CL). Showing the VWAP, standard deviation bands, and the volume-by-price

About the author

Trading and Investment

Traded the markets for over 15 years, including Commodities, Bonds, Currencies, Equities, and Indices. I have also worked as a Chartered Financial Planner.
CeMAP, CeFA, DipFA, AdvDipFA, Ba(Hons) Economics, Chartered ALIBF

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