Fundamental Forecast for USOIL: Bullish
Talking Points:
- OPEC Ministers, led by Saudi’s backs longer cuts and further encourages Oil Bulls
- Big Oil’s earnings show that confidence is emerging as WTI trades intraday to 2017 highs
- Per BHI, US Oil Rigs falls by 8. Rig count drops to 729 active US oil rigs
- IGCS showing increase in retail short WTI oil positions w/w, contrarian view favors push higher
The price of Crude Oil is set to rise another week, making it the fourth advancement of both WTI Crude and ICE Brent Oil. In late trading on Friday, WTI Crude Oil rose to the highest intraday level since July 2015. After a weak start to October, the price of crude has risen aggressively alongside base metals on a comparable convergence of demand beginning to outstrip supply. OPEC’s annual meeting in Vienna later this month will be a key event where the leaders of OPEC are expected to agree on
A key driver of higher crude oil has been the expressed view by OPEC’s largest exporter, Saudi Arabia’s oil minister, Khalid Al-Falih, who said the “Mission is not accomplished.” Traders should note that this was said as Brent (the global oil benchmark) traded at 27-month highs as producers pump less leading to lower output and higher prices. From a strategic perspective, OPEC+ (a moniker for OPEC and key allies like Russia) appears to be taking the long view, which has been validated by the forwards curve.
The forward curve in Brent is showing the most bullish view in nearly three years as the lowest point through 2019 is at $56, which lifts the floor of expected future Brent prices. Much of this rising forward curve is based on signs that OPEC will agree to extend the curb production pact either six or nine months after the deal expiry of March 2018. In the US, a positive weekly EIA Crude Oil Inventory Report showed the glut appears to be over as Oil stockpiles fell to a two-year low as exports, hit a new record last week showing the pick-up in global demand.
Lastly, earnings from big oil firms were undoubtedly positive and optimistic as Q3 earnings hit the market in recent weeks. In addition to confidence that OPEC will back an extension in production curves, Oil service companies see higher prices and higher demand on the horizon forecasting an increase in earnings. Now the equity prices of oil companies are aligning and catching up to the price of the product they discover, refine and/ or deliver.
A global rise in demand Click here to see our Q4 forecast on what outcomes we're watching!
Now, on to the charts. The price of crude oil continues to move higher and hug the top of a channel drawn off the July low of $42.03, and the initial high in the channel from the early August high of $50.43. There is a broader channel drawn off key pivots from 2014 and early 2015 that favor price resistance near $56.50. Lastly, a Fibonacci extension favors a potential push toward $59.08. Given the momentum of positive fundamental developments and supply falling against demand growth, we could see this ‘extreme’ level tested and broken before year-end. The sentiment picture below also favors looking at further gains. Currently, on a close and break below the late October low of $50.70 would stain the Bullish view. Until then, sights remain on further price upside.
Crude Oil price expected to hold above $49-51 polarity zone, upside focus for WTI at $59.08
Chart 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 2:00 PM ET: EIA Monthly Drilling report to be released Monday
- Tuesday 9:30 AM ET: OPEC’s World Oil Outlook to be published, with press conference by Secretary-General Mohammad Barkindo
- Wednesday – Time uncertain: China commodity & energy trade data for October, including crude
- Wednesday 10:30 AM ET: EIA weekly US Oil 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
Crude Oil IG Client Sentiment Highlight: Contrarian view of retail positioning favors upside
Oil - US Crude: Retail trader data shows 35.4% of traders are net-long with the ratio of traders short to long at 1.82 to 1. In fact, traders have remained net-short since Oct 25 when Oil - US Crude traded near 5266.8; the price has moved 4.6% higher since then. The number of traders net-long is 7.1% lower than yesterday and 15.9% lower from last week, while the number of traders net-short is 10.3% higher than yesterday and 22.4% higher from last week.
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. Traders are further net-short than yesterday and last week, and the combination of current sentiment and recent changes gives us a stronger Oil - US Crude-bullish contrarian trading bias (emphasis added).
-TY
