WTI rises over $2.0, probes 50DMA close to $79.00 despite US SPR release announcement

• WTI rose more than $2.0 in a “sell the rumour, buy the fact” reaction to the White House SPR announcement.
• WTI broke above a key downtrend and bulls may well look for further upside in the coming days.

Front-month futures of the American benchmark for sweet light crude oil, West Texas Intermediary or WTI, jumped more than $2.0 per barrel on Tuesday to test the 50-day moving average at $78.92. With WTI now trading in the upper $78.00s, that marks a near $3.50 or near 5.0% rebound from lows witnessed during Asia Pacific trading hours in the low $75.00s.

Technical buying contributed to the rally on Tuesday as WTI broke above a key downtrend that had been suppressing the price action since 10 November. If the 50DMA and resistance in the form of the psychologically important $79.00 level can be broken, the next resistance of note is in the $79.30s, an area of support (on 15 November) turned resistance (on 19 November). Above that, there is the $80 mark and the 21DMA at $81.00.

Not the reaction the Biden administration wanted

As far as the Biden administration will be concerned, Tuesday’s reaction in crude oil markets to the announcement of the US’ Strategic Petroleum Reserve (SPR) release plans could not have gone any worse. To recap, the White House on Tuesday published plans to release up to 50M barrels of oil in the coming months (18M of that involving the acceleration of pre-approved sales). A number of other countries announced or were reported to be on the cusp of, their own oil reserve release plans, including China, India, Japan, South Korea and the UK.

The threat and anticipation of these plans in recent days has weighed heavily on oil prices. But the reaction to the actual announcement seems to have been one of “sell the rumour, buy the fact”. As high-profile commodity strategists have been reminding us for weeks now, a crude oil reserve release would only have a temporary effect on prices because it does nothing the fix the underlying long-term supply/demand imbalance that has supported prices in recent weeks.

Moreover, OPEC+ has sent signals that they will adjust output accordingly to account for the global reserve release. The Secretary General of the cartel has been vocal in recent days/weeks warning about the prospect of oil markets returning to a supply surplus sooner than expected and calling for the cartel to exercise patience with output hikes.