NEW YORK (TheStreet) -- The Energy Information Administration (EIA) Weekly Petroleum Report on Wednesday showed a drawdown in crude for the seventh week in a row. While that should be a bullish data point, crude moved lower and broke down through key levels, giving back gains it had seen earlier in the week.
Crude is moving higher because Tropical Storm Bill hit the key oil state of Texas and as API data on Tuesday showed a drawdown in gasoline and crude stocks.
Alan Harry of Harry RE Trust told TheStreet's Jill Malandrino the drawdown was less than traders expected in a market that is severely oversupplied. He said traders need to see a lot of crude come out of the inventories, which has not happened. There was also a lot of speculators in the market who did not get the number they were looking for, and now they are pulling out.
In addition to a lower-than-expected drawdown, there was a build on the product side as gasoline inventories rose when they typically should be moving lower during peak summer driving demand. At this time of year in the U.S., investors have the expectation that seasonal demand will be a catalyst for moving inventories lower as refiners use crude supply to meet the needs of the end product. Less demand means more pressure on the supply side.
Because of the oil supply glut and lower demand, crude has been stuck in a tight trading range as fundamentals remain weak. Harry said he has been selling into any crude rallies because of the oversupply situation and as more players come into the market as time goes on. As crude rallies, Harry will start selling between the $60.50-$61.50 level. If it breaks $62.87, that is an area where Harry would be covering short positions. On the downside, Harry is waiting for crude to break $55. If it does, it could go to $50.