Crude Oil Struggles To Maintain Weekly Gain As Irma Pressure Arrives

Talking Points:

  • Hurricane Irma could be US’ most costly, Florida is 4th biggest oil consumption state
  • Two hurricanes behind Irma, Katia and Jose could also pose demand risk
  • Baker Hughes Data shows US Oil Rig Count Falls 3 to 756 active US oil rigs
  • IGCS data showing US Crude client short positioning increases 56% WoW, favoring upside

Fundamental Forecast for Crude Oil: Bearish

Crude Oil has been a hard market to pin down lately due to the sharp rally within a Bear market. Naturally, the first thought would be that a natural disaster would boost commodity demand. However, Crude Oil is already over supplied and the upstream landscape is not affected by the storms. The downstream component of the Oil market, where demand occurs is the one in the path of storms on the horizon. Therefore, we could see a continuation of EIA Crude Oil inventory report numbers that encourage sellers to do what they do best, and buyers to hold off.

Could Hurricane Season alter the outlook for Oil? Click here to see our Quarterly forecast on what outcomes we're anticipating!

When breaking down the EIA report, there are a few things you should note and keep an eye out for in coming weeks. First, the adjustments made by the EIA due to the supply and demand imbalance, where supply exceeded demand was the lowest since April 2004 at -625,000 per day. Total exports from the US also collapsed given the reduced activity out of the port of Houston due to Hurricane Harvey induced flooding. As expected, this lead to a large build in Crude Oil inventories of 4.58 million barrels, which helped bring about only the third product stockpile build since June.

If the string of hurricanes in the Gulf continue to dampen demand at the same time seasonal demand tapers, we could soon see an increasingly unfavorable fundamental picture that could keep a lid on prices.

Technical Outlook on Crude Oil: Still Resistance Keeps Technical Bias Lower

Crude Oil Struggles To Maintain Weekly Gain As Irma Pressure Arrives

Chart by Tyler Yell, CMT

Traders should note after the disaster from Hurricane Katrina (fall of 2005), Crude Oil fell by ~18%. The charts seem to show that without a definitive break and close above $49.64, the 200-DMA, and the plethora of resistance from trendlines (see chart below) near $50, that Bearish pressure is likely to remain. Commodities tend to rally when the USD is weak, but the US Dollar trading to the lowest levels since the opening day of 2015 has not been enough to help Crude Oil breakout. The 20-day rolling correlation between the US Dollar and Crude Oil is -0.38, which is negative as expected, but not strong enough to change the course of Oil or to dominate the drop in demand concerns.

The technical picture clearly favors a continuation of the 2017 trend if the price fails to trade above the 200-DMA and the trendlines on the chart above.

Recommended Reading: Crude Oil Price Attempts Sharp Recovery, Faces $50-Level and 200 DMA

Next Week’s Data Points That May Affect Energy Markets:

The fundamental focal points for the energy market next week:

  • Sunday: Hurricane Irma forecast to reach Miami
  • Tuesday 6:00 AM ET: OPEC monthly market report
  • Tuesday 4:30 PM ET: API issues weekly U.S. oil inventory report
  • Wednesday 4:00 AM ET: IEA Monthly oil market report
  • Wednesday 10:30 AM ET: EIA Weekly U.S. Оil Inventory report
  • Fridays 1:00 PM ET: Baker-Hughes Rig Count at
  • Friday 3:30 PM ET: Release of the CFTC weekly commitments of traders report on U.S. futures, options contracts

IGCS data showing US Crude client short positioning increases 56% WoW, favoring upside

Crude Oil Struggles To Maintain Weekly Gain As Irma Pressure Arrives

Oil - US Crude: Retail trader data shows 51.4% of traders are net-long with the ratio of traders long to short at 1.06 to 1. In fact, traders have remained net-long since Aug 14 when Oil - US Crude traded near 4894.0; price has moved 0.6% lower since then. The number of traders net-long is 1.6% lower than yesterday and 29.3% lower from last week, while the number of traders net-short is 0.9% lower than yesterday and 56.0% higher from last week.

We typically take a contrarian view to crowd sentiment, and the fact traders are net-long suggests Oil - US Crude prices may continue to fall. Yet traders are less net-long than yesterday and compared with last week. Recent changes in sentiment warn that the current Oil - US Crude price trend may soon reverse higher despite the fact traders remain net-long (emphasis added.)