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Talking Points:
- Crude price surge in September aligns with fundamental shift and turns forecast Bullish
- Global demand forecasts boosted by IEA, OPEC helping to favor rebalancing view
- Chart positioning favors upside bias hints at possible turning points and support
In the rearview mirror lies an impressive quarter for the price of Crude Oil. In September alone, Crude Oil price rose by nearly 9%, and much of the move higher was a combination of fundamental shifts from both the IEA and OPEC demand forecasts. The raised demand forecasts align with the production curb from all but two OPEC countries makes the argument that the diligent rebalancing effect is working.
In addition to rising demand and the reduced production from OPEC, traders can look to physical markets, which are encouraging. The rise of backwardation, where the front-month contracts trade at a premium to later deliveries signaling tighter supplies in encouraging for the market. Such a development is fundamentally bullish as it shows the time premium on getting access to the commodity sooner than later. In addition to the price of Crude Oil itself, backwardation tends to be a positive development for energy derivatives like energy-based shares.
If the backwardation structure continues into Q4, traders could expect to see Bullish price patterns play out like the one detailed by Jeremy Wagner,CEWA-M in the Q4 technical outlook for Oil. Later in Q3, Brent Oil traded close to $60/bbl, and further backwardation may push the price through $60 in Q4.
WTI Crude Oil (weekly chart)
