Although the EIA showed a larger-than-expected drop in crude oil inventories, the black gold closed the day only four cents above Wednesday's closure. Where are the oil bulls?

Fundamental Factors and Crude Oil

Yesterday, the Energy Information Administration showed that crude oil inventories dropped 6.4 million barrels, exceeding the 4.4 million-barrel drop forecast. Additionally, gasoline inventories declined sharply (by 2.85 million barrels), easily beating analysts' forecasts. Despite these bullish numbers the price of crude oil moved higher only temporarily and the commodity erased earlier small gains very quickly, closing the day only four cents above Wednesday's closure.

What does it mean for black gold? In our opinion, the lack of response to the eighth straight week of crude oil inventories' drop does not bode well for oil bulls – especially when we take into account a larger-than-expected drop in gasoline inventories. On top of that, rising output from Nigeria and Libya gave oil bears another reason to act. How have all the above-mentioned factors affected the technical picture of light crude? Let's check.

Crude Oil's Technical Picture

Let's take a closer look at the charts and find out what are they telling about future moves (charts courtesy of http://stockcharts.com).

Wednesday's decline took light crude to the 50% Fibonacci retracement, which could trigger a small rebound (to the long-term green support line based on the August and November lows) later in the day. If we see such price action, it will be another negative event, which will suggest a verification of the earlier breakdown.

Looking at the above charts, we see that the situation developed in tune with our assumptions and crude oil verified the earlier breakdown under the long-term green support line based on the August and November lows. This negative development encouraged oil bears to act, which pushed the price of the commodity lower.