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Negative momentum points to lower prices

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Negative momentum points to lower prices

Oil prices retreated from their recent highs falling nearly $5 per barrel on a WTI basis.  The decline comes despite better than expected inventory data released by the Department of Energy on Friday and is more of a function of weakening global economic data.

On Wednesday, global banking giant HSBC (NYSE:HSBC) released their flash PMI report which showed a decline in manufacturing to a 47.7 print compared to the 48.5 expected by economists.  The weakness in the data was a drag on oil prices, which came despite better than expected petroleum inventory data.

Crude oil inventories continued to decline last week and have been above their five-year range all but one week since March 2012.  Inventories have declined by a record 27 million barrels over the past three weeks and are back within the five-year range. Despite the record draw over the past three weeks, average 2013 inventories through July 12 remain 6 percent above the same period last year and 11 percent above the five-year average.

On the supply side, lower crude oil imports have increased the draw on crude oil stocks to meet demand from increased refinery runs. Crude oil imports into the United States for the weeks ending June 28 through July 12 averaged 649,000 barrels a day according to the Energy Information Administration less than the three-week period ending June 21. Imports into the Gulf Coast and East Coast averaged 671,000 barrels a day and 219,000 barrels a day less, respectively, compared to the previous three-week period.

Crude oil prices are beginning to show signs of weakness after testing resistance earlier in the week.  Prices have moved through support (now resistance) near the 10-day moving average at 4106.42.  Negative momentum has increased with the MACD generating a sell signal as the spread crossed below the 9-day moving average of the spread.  The RSI is printing near 57 which is still in the middle of the neutral range.

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