Fundamental Forecast for USOIL: Bullish
Crude Oil Price News Talking Points:
- A market divided was the takeaway this week after OPEC & IEA have differing demand views
- The temporary shutdown of the North Sea pipeline that underlies Brent provided price volatility
- Per BHI, U.S. Oil Rig Count falls by 4 to 747, first drop in six weeks
- Oil Market Insight From IG UK: Net-short retail trader bias provides a Bullish price outlook
Will they or won’t they? That is, will US Shale producers out produce OPEC and strategic alliances that agreed to a production cut in 2018 in such a manner that the agreement loses its positive effect? If you asked the two most credible entities in the oil market about their views, you would hear different answers.
A Market (Forecast) Divided
In the prior week, two energy market giants, OPEC and the EIA, have differing views on the strength of demand and how that will affect whether the oil market will continue to be oversupplied or should demand rise strongly enough next year in whether the market will be in a deficit.
The OPEC view is that their efforts will pay off and they will have finally cleared through the supply glut whereas the EIA sees US production as too aggressive to win the war so that the progress made in eliminating the glut next year will be negligible. Naturally, which forecast is right whether it is glut eliminated or glut remaining in force will significantly determine how the price of oil will end 2018. Either way, traders can expect volatility to increase as positioning is likely to be spread around and whoever is wrong may need to aggressively shift their exposure if they followed the wrong forecast.
A side note worth considering is that options traders seem to favor OPEC’s view. When looking at ICE Brent $80 call options for June 18 onward, the volume surged this week to over 30,000 contracts, which would be good for a
Hey, Did You See That Crack?
A key driver of the price volatility over the last week was the halting of the Forties Pipeline, which affects ~50% of the UK oil production that underlies the Brent market due to a hairline crack discovered. The announcement was made by the owner of the pipeline, INEOS on Monday who bought the pipeline in late October from BP. The flow of the oil through the pipe helps to determine the price of different grades of crude, which means the front-month futures contract value will likely be volatile though this week ended flat.
Brent Crude Price Forecast Analysis
Despite the news flow, the Brent oil price has traded sideways toward the end of the week even though it hit an intraweek high trade in 2015. On the Brent oil price chart, traders will likely continue to keep an eye on price action holding above $61/bbl on a closing basis (50-DMA) to show the uptrend is at play and that a possible double-top is not playing out.
A break below $57.56/bbl (100-DMA) would be a key breakdown that would support the “double-top” pattern view, but above there, the Bullish trend is expected to slowly continue as the options traders looking at $80/bbl are betting toward. The 3-5 week bullish price target is $68-$69.60/bbl, and the bearish target is the May higher and October low near $55/bbl but remains an alternative view if the Bullish scenario fails.
There’s a global rise in oil demand! Click here to see our Q4 forecast on what outcomes we're watching!
Brent Crude Price Chart Works To Avoid Double-Top
Chart Created byTyler 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 Productivity Report
- Monday (time uncertain): JODI issues world oil exports
- Tuesday 4:30 PM ET: API issues weekly U.S. oil inventory forecast
- 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 Market Insight from IG UK Client Positioning
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.