On Wednesday oil closed lower because of mixed data that was reported by the Energy Information Administration or EIA. The amount of crude stockpiles fell, but petroleum products rose three times higher than the expected amount. One positive piece of data was shut out by a very negative one in this instance. In addition, gasoline stockpiles also rose higher than expected. This also weighed heavily on the price of oil. The price of oil is largely dependant on the amount of supply that exists in the global market. Which is why oil traded lower on Tuesday as well. The last few days has seen a downturn in oil and the reason is largely because of OPEC statements. Just the other day OPEC stated that forecasts showed the global oil glut could last longer than expected. This is not something that oil traders want to hear. U.S. WTI crude oil settled lower by 2.94% to $43.58 a barrel.

Crude Stockpiles On The Decline

It was a good week for crude stockpiles, as they were shown to have dropped over the week. The EIA reported that stockpiles for crude fell by 559,000 barrels for the week ending September 9. While crude stockpiles only fell by a small amount, it is still considered to be highly bullish. What really left a bullish tone was the fact that the stockpiles number came in about eight times better than estimates. Analysts had expected a stockpiles build of 3.8 million barrels. In the face of an oil global glut, a reported stockpiles number always needs to come with a fall in barrels. Anything else, such as a buildup of inventory, leaves a bearish tone for the market. The stockpiles is a number that is tracked to determine the state of oil supplies in the market. That’s why each week the EIA report dictates which way oil trades.

Two Negatives

The crude stockpiles report by the EIA painted a rosy picture for oil. Had that been the only report for the day, it is highly likely that oil would have traded higher. What caused oil to trade lower were two problems stemming from other reports. The two other reports that came out were from diesel/ heating oil, and gasoline stocks. Both of these fell below expectations, thus, the reason why oil closed lower for the day. The diesel and heating oil number rose by 4.6 million barrels in the week ending September 9. Analysts only expected an increase of 1.5 million barrels. That means that distillates increased four times greater than what analysts had expected. That is a large build up of supply and definitely contributed to oil paring its early gains. One negative piece of data was one too many. The problem was that even gas stockpiles also posted a lower than expected number. Gasoline stockpiles rose by 567,000 barrels, while analysts were only expecting a 343,000 barrel increase. This number probably also contributed to oil trading lower for the day.

Momentum Play

Oil will likely be pressured for the rest of the week after a few disappointing results. That doesn’t mean that traders can’t find a way to profit in the weeks to come. Considering that OPEC and non-OPEC members are meeting in an industry conference between September 26th – 28th, it leaves a welcome opportunity to trade oil on the rise. That is because all these nations will discuss the possibility of implementing an oil freeze to bring down the amount of supply in the open market. With a reduction in supply, there is a high chance that the price of oil should start to climb higher. There is just one major roadblock to this solution. That roadblock is the situation where analysts and investors don’t believe that a deal will be done at the industry conference. Still, there will always be that speculation of a deal possibly happening. Thus, there is a potential for a run up in the price of oil heading into the conference. One thing to note is that while profit can be made on a run-up, it would be wise to take profits before that event. If no deal is struck then the price of oil could find itself in a very terrible downturn quickly.