Fundamental Forecast for USOIL: Bullish
- The ONE Thing: Bets are rising that Trump will exit the Iran Accord on May 12 after Israeli PM Netanyahu called Iran liars, only to have Iran call Trump a bully. It seems like Trumps style is catching on.
- The popular move is to talk about how much oil production is coming out of the US, record numbers in fact, but the more impactful change in production is coming from the lack of OPEC production as OPEC looks to over-tighten the market
- Per BHI, U.S. Oil Rig Count rises 9 rigs to 834, US total rig count up 11 to 1,032
- The technical analysis picture of Crude Oil clearly shows price trading above multiple forms of support. Key support comes from technical analysis tool, Ichimoku that shows support on the Daily chart at $65.69 and lower still at $62.21.
- IGCS shows net-short retail positioning in WTI - US Oil, favoring bullish pressure
Trump is making a bigly impact in the world of geopolitical politics and its helping crude oil traders with long exposure. 18-months after US president Donald Trump’s presidential victory that sent stocks higher and the US Dollar aggressively higher still, other world leaders have taken to his brand of calling them like they see em’.
The Iran Decision – The Next Shoe to Drop In The Market
Two week’s ahead of Trump’s decision as to whether or not the US will exit the Iran accord and introduce sanctions on the third largest producer of OPEC, Israeli Prime Minister Benjamin ‘Bibi’ Netanyahu, who is Trump’s close ally, gave an artful presentation with PowerPoint on live television calling Tehran liars.
The presentation said that Tehran has been lying about pulling back on nuclear advancement and he made his case by revealing ‘secret nuclear files’ from Tehran.
Not to be outdone, Iranian Foreign Minister Mohammad Javad Zarif responded this week by saying they would not negotiation on such grounds and that the US is “bullying” Iran by potentially imposing sanctions that would withdraw capital from the country.
As you can see above, OPEC’s production sees 11.7% come from Iran, making Iran OPEC’s third largest producer. This has caused other fundamental data, like EIA weekly Crude Oil inventories, which have had a touch of negative and positive data for Crude bulls to take a backseat with all focus on May 12 when the decision will be made by the US.
Once again, WTI and Brent crude have become the market everyone is discussing! Unlock our forecast here
Geopolitical risk premia aside, Goldman Sachs Commodity desk this week said they were going on a ‘bull tilt’ a portfolio management term for overweighting in an area where confidence for gains is high. GS went on to say that investors should focus on returns, Crude is up +10% this year, and not concerns like geopolitics.
Lastly, Russia reaffirmed their stance that they’ll stick with the OPEC production cuts to bring balance to the market that they’ve already significantly tightened and by year-end would likely be considered over-tightened.
Technical Focus for Crude Oil – Bullish Resumption despite Highest Level in 3 Yrs.
Trends do not die of old age. Regardless of how tired you may be about the rising price of Crude Oil, the supporting factors that have driven the trend of WTI crude oil toward $70 continue to be in place, and I would argue they’re strengthening.
Therefore, it’s helpful to keep the bullish target of $70.16 in focus, which is the 100% Fibonacci expansion of the 2016 and 2017 high from the 2017 low.
However, despite the time it may take to get there or beyond, the support points in play deserve more attention for technical traders. Why? Because until they break, it shows the bullish theme or story is intact.
The first key support zone comes from a polarity point of the January high and the current Ichimoku Kijun-Sen or 26-day midpoint at $66.58-65.69. A move down to there likely just mean Crude bulls with short-term are awaiting the May 12 outcome with Iran to settle.
Concerns that the bull trend may be taking a longer vacation and play into the ‘sell and may and go away’ theme would be on a break of the current cloud support (as opposed to future cloud) that sits at $62.21/bbl. With price remaining above these two points, you may hate the trend, but it’s likely not worth fighting it. Me? I’m in and looking higher still.
Chart Source: Pro Real-time®, an IG Charting Package, 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:
- Tuesday 10am Beijing time: China’s customs office releases commodity & energy trade data for April, including crude oil
- Tuesday 12:00 PM ET: EIA’s monthly Short Term Energy Outlook (STEO) report
- Tuesday 04:30 PM ET: API Weekly Oil Inventories Report
- Wednesday 10:30 AM ET: EIA issues weekly US Oil Inventory Report
- Friday 1:00 PM ET: Baker-Hughes Rig Count
- 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 bullishness
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.
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---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.
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