Oil Remains Weak, Further Downside Beckons

Talking Points:

  • US crude inventories fall but oil production increases.
  • OPEC cuts and rhetoric currently unable to stem the losses.
  • US crude oil remains stuck in a downward trend.

Fundamental Forecast for Oil: Bearish

US crude oil continues to fall, and is likely to fall further, as shale companies continue to increase production to near-record levels. After rallying sharply on Thursday on news of a larger-than-expected drawdown in oil inventories, US crude gave back all of its gains and currently trades at a two-week low around $44.51/brl. Crude is also nearly $3 lower than Wednesdays high of $47.35/brl.

The latest downturn in oil was prompted by the latest data from the US Energy Information Administration that showed domestic production rising by 1% to 9.34 million barrels a day, a near 10% year-on-year rise, and close to the 1970 average high of 9.6 million barrels. The EIA has also revised down its average price for US crude to $53.81 in 2018 from $55.10 last month.

In addition, while there are conflicting technical signals for US crude, the path of least resistance remains lower. The spot price has just broken the 20-day moving average, a bearish set-up, while a close below the May 4 low of $43.97 will open the way back to the recent low of $42.55/brl. A look at the stochastic indicator however shows the market as ‘oversold’ and may provide some short-term support.

US Crude Oil Daily Timeframe (December 30, 2016 – July 7, 2017)

Oil Remains Weak, Further Downside Beckons

Chart by IG

If you are looking at oil on a slightly longer timeframe, you can get your free DailyFX Third-Quarter Trading Forecast and Trading Guide here.

--- Written by Nick Cawley, Analyst

To contact Nick, email him at nicholas.cawley@ig.com