Oil Price Forecast: Higher Highs & Lows Spur Shift in Retail Interest

Oil Talking Points

Crude initiates a series of higher highs & lows even as Saudi Arabia Minister of Energy Khalid Al-Falih pledges ‘to assure markets and petroleum consumers around the world that we want to continue support the growth of the global economy,’ but the broader outlook for oil no longer remains constructive as both price and the Relative Strength Index (RSI) snap the bullish formations carried over from August.

Oil Price Forecast: Higher Highs & Lows Spur Shift in Retail Interest

Oil prices appear to be catching a bid as Russia Energy Minister Alexander Novak sees a ‘possibility of further regulating output,’ and the ongoing efforts by Organization of the Petroleum Exporting Countries (OPEC) and its allies to rebalance the energy market may continue to influence crude prices as the group shows no interest in boosting production.

Indeed, the current environment may keep crude prices afloat even though OPEC cuts its world oil demand growth forecast for 2019, and growing tensions in the Middle East may fuel higher energy prices especially as the U.S. sanctions on Iran go into effect from November 4.

However, the IG Client Sentiment Report continues to warns of a larger pullback in oil as the recent selloff generates material shift retail interest.The gauge now shows 65.4% of traders are net-long with the ratio of traders long to short at 1.89 to 1. The number of traders net-long is 17.8% higher than yesterday and 42.6% higher from last week, while the number of traders net-short is 8.6% lower than yesterday and 39.3% lower from last week.

The ongoing buildup of net-long interest suggests traders are attempting to fade the weakness in oil, and a further shift in crowd sentiment may offer a contrarian view especially as both price and the Relative Strength Index (RSI) snap the bullish formations from earlier this year. Sign up and join DailyFX Currency Analyst David Song LIVE for an opportunity to discuss potential trade setups!

Oil Daily Chart

• Broader outlook for oil no longer remains constructive following the break of channel support, with the RSI highlighting a similar dynamic.
• Waiting for a break/close below the $70.70 (50% retracement) to $71.00 (50% expansion) hurdle to open up the downside targets, with the next region of interest coming in around $69.10 (61.8% expansion) to $69.30 (61.8% retracement).
• Next downside region of interest comes in around $67.00 (50% expansion) to $67.20 (78.6% retracement) followed by the Fibonacci overlap around $64.80 (100% expansion) to $64.90 (38.2% expansion), which largely lines up with the August-low ($64.45).

For more in-depth analysis, check out the Q4 Forecast for Oil

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--- Written by David Song, Currency Analyst

Follow me on Twitter at @DavidJSong.