Oil slumping overnight

Oil is slumping overnight. Looks like it may retest support at $78 tomorrow.

Here at Black Gold we are uncertain as to what to do with our crude position. I am currently short but will probably cover tomorrow if oil gets close to $78. While this week's DOE numbers were negative with builds in crude, gasoline and distillate, they were not nearly as negative as the preliminary indications from the ugly API inventory report. Total petroleum stocks only increased by 3.4M bbls this week as draws in propane and other oils offset the builds in headline products and inventories in Cushing actually drew 1.3M bbls. Furthermore, this is a time of the year when stocks often increase due to some tax related inventory shifting by refiners so the build of 3.4 M bbls was actually less than average and less than we saw this time last year.

While I am in no way bullish on crude, I doubt that this week's slightly negative inventory report is enough to push crude through resistence and back into the low 70's. The market will probably need one more piece of bad news to get it there. We may get this with a build in inventories next week either due the same inventory effect that caused a build this week or offshore tankers dumping inventory. In the meantime, I suspect that crude will languish until there is some more (most likely bearish) news. Since crude is unlikely go lower in the near term, I can reduce my risk by covering my position and looking to reshort on a bounce. I am already up $3.50 per bbl on this move so why risk giving that (and more) back on some news out of the middle east?