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July Crude Oil futures finished the week lower in lackluster fashion. Despite closing on its high the previous week which should have been a lay-up for a higher opening and follow-through rally, speculative traders failed to bite on the set-up, giving long investors an early excuse to take profits and pare positions.
The framework for last week’s weakness was actually laid out the previous week when short-covering drove the market to $104.50 on the heels of a surprise decline in imports according the U.S. Energy Information Agency inventory report for the week-ended May 16. Although on paper this served as a sign that increased domestic production was reducing our dependence on foreign oil, savvy traders knew that one week did not make a trend.
The short-term price action may have suggested higher prices to follow, but veteran traders failed to chase the market higher. Instead solid bids were placed in the market, spooking weaker shorts out of their positions and giving the professional trader a better price to initiate fresh short positions. The price action suggests the market merely reflected a “buy the rumor, sell the news event”.
The ability to sift through the EIA data paid off this week for the professional because the same government agency that reported the decline in imports the week-ended May 16 showed that U.S crude oil imports averaged 7.8 million barrels per day the week-ended May 23, up by over 1.3 million barrels per day… find more at Oilprice.com