Fundamental Forecast for USOIL: Bullish
- Trump ‘Trade War’ effect on global demand for commodities likely key driver for Oil
- Per BHI, U.S. Oil Rig Count falls by 4 to 796, helping support end of week rally
- Inventory drawdowns in the US keep hopes alive while the Oil price remains above $58/60
- IGCS shows growing net-long retail positioning in WTI - US Oil, favoring downside pressure
The resilience of Crude Oil has been impressive this week. US Production is at an all-time high while talks of a brewing Trade Wars with key commodity consumers like China currently has more questions floating around than answers. Traders have also seen a demand premium drop when looking to front-month futures contracts trading at a premium to longer-dated contracts.
Additionally, the EIA Crude Oil Inventory Report showed the 11th straight weekly decline in Cushing, OK alongside a drawdown in distillate inventories helping to support that demand remains robust.
NFP-Fueled Risk-Rally Saves Oil from Multi-Week Decline
Through this, Crude has remained above key chart support of $58/60 per barrel. Friday also saw buying pressure remain while internal fundamentals weakened thanks in part to a risk-rally and a weaker US Dollar. The risk-rally was attributed to a ‘Goldilocks’ US Non-Farm Payroll number that showed wage inflation pressures cooled down from a month ago and absolute numbers of jobs handily beat expectations.
Futures Spreads Narrowing As Demand Premium Shrinks
When looking at futures spreads to see demand premium, it likely concerns Bulls who are still near record levels, are seeing a falling short-term premium. Per Institutional Positioning Data, Crude Net-Long is slightly off extremes seen in January. A breakdown further in the demand premium seen in a backwardation environment that recently hit the lowest levels since December could see traders exit their longs and put pressure on the Bulls.
Front-Month Crude Futures Contract (Orange) Falling With Spreads (Blue)
Data Source: Bloomberg, Chart created by Tyler Yell, CMT
There’s a global rise in oil demand! Click here to see our Q1 forecast on what outcomes we're watching!
Technical Focus for Crude Oil – Bullish Resumption
The technical focus on WTI Crude Oil remains at $63.62/27 as resistance, the January 30 low and March 6 high respectively. Bulls of WTI should remain encouraged as the price of the front-month contract continues to trade sideways, yet above support despite concerns of a Trade War brewing due to Trump’s newly enacted Tariff’s.
Concern that the Bull market is about to enjoy a spring break would happen with a close below the trendline drawn off the August higher-low near $60/bbl. The zone of support extends down to the February low of $57.80/bbl. A move below $57.80 would open up the historically pivotal 200-DMA at $55.43.
A move and close above $63.62/27 would align with a Bullish breakout per the Ichimoku cloud, which has been applied to the Crude Oil chart.
Learn how to utilize Ichimoku Cloud in our FREE guide here
If you want to see Ichimoku Analysis in action, check out my new report, Ichimoku Charts that Matter
Crude Oil Price Holds Support As Stocks and US Bond Yields Rise Post-NFP
Chart Source: ProRealtime, IG UK Price Feed. 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 03:00 PM ET: EIA’s Monthly Drilling Productivity Report
- Tuesday, Day of 2: Oil & Finance Conference in Oslo
- Tuesday 04:30 PM ET: API issues weekly US Oil Inventory report
- Wednesday 10:30 AM ET: EIA issues weekly US Oil Inventory Report
- Wednesday 12:00 PM ET: EIA releases its monthly supply report
- Thursday 05:00 AM ET: IEA monthly Oil Market 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 Insight from IG UK Client Sentiment:: Contrarian view of retail positioning favors downside
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. Traders are further net-long than yesterday and last week, and the combination of current sentiment and recent changes gives us a stronger Oil - US Crude-bearish contrarian trading bias.
Discuss this or other markets you’re trading with me below!
---Written by Tyler Yell, CMT
Tyler Yell is a Chartered Market Technician. Tyler provides Technical analysis that is powered by fundamental factors on key markets as well as t1rading educational resources. Read more of Tyler’s Technical reports via his bio page.
Communicate with Tyler and have your shout below by posting in the comments area. Feel free to include your market views as well.
Discuss this market with Tyler in the live webinar, FX Closing Bell, Weekdays Monday-Thursday at 3 pm ET.
Talk markets on twitter @ForexYell