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Oil climbs higher on expectations US stockpiles could tighten

Oil prices rose over 1.5% in New York after Saudi Arabia signaled a reduction in in shipment to US refiners within in weeks, a move aimed at making the US reduce their stockpiles.  Oil also benefited from a Genscape report that US oil inventories at Cushing, Oklahoma, the delivery point for crude declined by 8221,892 barrels in the week ending December 11th.  The over supply story is one part of the reason we have seen lower prices over the past few months.  Analysts are trying to figure out how effective last week’s OPEC and allies production cut will be next year.  Canada also contributed to tightening supplies after the December 2nd announcement that Alberta Canada mandated a 325,000 barrel per day cut in oil output.  Today, Western Canadian Select Crude is also higher by 1.7% and the Canadian dollar was firmer by 0.1% against the dollar.   West Texas crude prices have consolidated between $50.50 and $53.00 this week.

Many oil traders are also dissecting today’s IEA monthly report.  It noted there are concerns as to the stability of production in Libya, Nigeria and Venezuela; and the tanker collision last week in Norwegian waters, although modest in impact, is another reminder of the vulnerability of the system to accidents.  The potential of greater supply losses from both Iran and Venezuela could bring the number of cuts to 1.6 million barrels a day, twice as much as what was committed from the OPEC portion of the agreed upon cuts.

Price action on the West Texas Intermediate daily chart shows that since the November 29th low of $49.41, price has continued to respect the $50 level.  If we see prices continue to consolidate here and fail to make a fresh low, we could see a run towards the $54.60 level.  Key resistance may come from the $56.50 level, which could also signal the formation of a bearish Butterfly pattern.  Point D is targeted with the 141.4% Fibonacci expansion level of the X to A leg and the 161.8% Fibonacci expansion level of the X to A move.  If valid, we could see price attempt to test the $52.00 region.

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