Fundamental Forecast for USOIL: Bullish
Talking Points:
- Crude oil may feel vulnerable, but further OPEC supply drops could support Bullish argument
- EIA data on Wednesday takes WTI crude to a one-week low at $67.11/bbl
- Questions around Iran nuclear deal helps oil stay near the top of 2018 price range
- Per BHI, U.S. Oil Rig Count rises 5 rigs to 825, US total rig count up 8 to 1,1021
- IGCS shows net-short retail positioning in WTI – US Oil, favoring bullish pressure
Crude oil looks likely to remain the envy of commodity traders as April heads toward a close. Earlier this year, when risk had a heart attack, gold appeared to be the asset to own, but those gains faded and now Gold is up less than 1.5% year-to-date.
Then sanctions on Russia and specifically, Oligarch Oleg Deripaska who owns United Co. Rusal the largest non-Chinese Aluminum supplier in the world by the US in early April sent Aluminum to decade-plus highs. However, now that sanctions enforcement by the US Treasury has softened and news that Deripaska has agreed to resign from Rusal and will sell his controlling stake have taken Aluminum to roughly flat on the year.
Then, there was crude oil.
ICE Brent crude is up 12% year-to-date while WTI crude is up ~13% on the year. In the commodity bloc, only certain agricultural markets can hold a candle to energy.
Once again, WTI and Brent crude have become the market everyone is discussing! Unlock our forecast here
EIA Inventory Data is Soft but Geopolitical Risk Premium Supports Oil
Wednesday’s EIA report on the surface may have appeared to mark the top in WTI crude oil, but multiple factors look set to keep the hot commodity supported. Crude oil exports from the US surged to a record 2.3 million barrels per day alongside distillates that rose to a weekly record of 1.7m.
Maybe it’s no wonder that the world’s largest oil supertanker, the Nave Quasar at 1000 ft long arrived in Texas City for the first time despite being built in 2010.
Data Source: Bloomberg, Chart created by Tyler Yell, CMT
The chart above shows how demand shifts and supply will fill any gaps of a homogenous product like oil. As OPEC’s production and supply dropped off, US shale increased exports aggressively. US exports are up nearly 130% year-to-date and have risen by 3,000% since 2014.
OPEC Exports Continue To Contract
Data Source: Bloomberg, Chart created by Tyler Yell, CMT
A combination of high-compliance from OPEC+ members on production curbs that look set to over-tighten the market and potential Iranian sanctions being imposed again from the US on May 12th are putting a clear premium on Brent oil, the global benchmark.
The discount of WTI to Brent fell to the widest for 2018 this week at -$6.67 cents. Backwardation has also remained showing that a premium is applied to front-month futures contracts of Brent that signifies there is a higher benefit that outweighs the costs to carry of oil.
Access our most recent technical breakdown of Crude Oil here
Technical Focus for Crude Oil – Bullish Resumption despite Highest Level in 3 Yrs.
The recent boost in Brent Crude Oil took prices above the 38.2% retracement AT $73.09 of the 2008-2016 range as prices surged on the easing global supply glut. Now, traders that focus on the charts, or technicians are focusing on the range between $75-$82/bbl on Brent and $70 on WTI.
As long as the price remains above the daily Ichimoku cloud with the lagging line (bright green above) also above the cloud, it’s hard not to favor a move toward the eventual targets given the fundamental support for further Brent price advances.
Chart Source: Pro Real-time®, an IG Charting Package, IG UK Price Feed. Created by Tyler Yell, CMT
Next Week’s Data Points That May Affect Energy Markets:
The fundamental focal points for the energy market next week:
- Monday 12:00 PM ET: EIA releases Petroleum Supply Monthly
- Tuesday 04:30 PM ET: API Weekly Oil Inventories Report
- Wednesday 10:30 AM ET: EIA issues weekly US Oil Inventory Report
- Friday 1:00 PM ET: Baker-Hughes Rig Count
- Friday 3:30 PM ET: Release of the CFTC weekly commitments of traders report on U.S. futures, options contracts
Crude Oil Insight from IG UK Client Sentiment:Contrarian view of retail positioning favors bullishness
Source: IG UK Client Sentiment Readings on DailyFX
We typically take a contrarian view to crowd sentiment, and the fact traders are net-short suggests Oil – US Crude prices may continue to rise.
Discuss this or other markets you’re trading with me below!
—Written by Tyler Yell, CMT
Tyler Yell is a Chartered Market Technician. Tyler provides Technical analysis that is powered by fundamental factors on key markets as well as t1rading educational resources.
Read more of Tyler’s Technical reports via his bio page.
Communicate with Tyler and have your shout below by posting in the comments area. Feel free to include your market views as well.
Discuss this market with Tyler in the live webinar, FX Closing Bell, Weekdays Monday-Thursday at 3 pm ET.
Talk markets on twitter @ForexYell
Join Tyler’s distribution list.
