Crude Slides After Inventory Report Points to Large Surplus

Crudeoilhas recovered (somewhat) after sustaining sharp losses on Tuesday. In Wednesday's North American session, West Texas Intermediate crude oil futures are trading at $55.62, down $0.97 or 0.79%. Brent crude oil futures are trading at $61.44, down $1.20 or 1.30%. On Tuesday, WTI fell 2.9%, its sharpest one-day drop since the end of September.

API Reports Large Surplus, EIA Next

Investors have been keeping a close eye on U.S. crude inventory reports, a key gauge of supply and demand pressures on crude. On Tuesday, the American Petroleum Institute (API) estimated a crude buildup of 5.94 million barrels for the week ending November 14, crushing the estimate of 1.54 million. Later on Wednesday, the Energy Information Administration (EIA) will release its weekly report, with a forecast of 2.2 million. Another surplus could put downward pressure on crude prices.

Investors Eye FOMC Minutes

The spotlight will be on the Federal Reserve on Wednesday, as the Fed will release the minutes from its October 30 meeting. At that meeting, the Fed lowered the benchmark rate to 1.75%, which was the third successive cut in as many meetings.

At the same time, investors considered the October cut was considered hawkish, as policymakers sent a signal that they were taking a pause from trimming rates. The Fed rates statement said that the economy was in a good place, but also noted that uncertainties about the outlook remain. Will we get more mixed signals from the minutes? Any hints about future rate cuts could impact on oil prices, so traders should treat the minutes as a market-mover.

Technical Analysis

After crude's sharp slide on Tuesday, support at 55.00 is vulnerable. Crude tested this line in the Asian session and I expect that this line will continue to be challenged. Below, there is support at 54.50. On the upside, the 50-EMA line is just above where crude is trading, at 55.96. The next resistance line is at 56.50. Next, the200-EMA is at 56.95.