Talking Points
- Traders in US crude oil need to keep a close watch on tropical storm Harvey as it nears Texas.
- By one estimate it could put a third of US refineries out of action if it hits the state.
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Crude oil traders should monitor tropical storm Harvey carefully as it nears Texas. According to the US National Hurricane Center, it’s likely to bring multiple hazards including heavy rainfall, storm surge and possible hurricane conditions to portions of the Texas coast and, by one estimate, it could put a third of US refineries out of action if it hits the state.
Clearly, that could increase the price of US crude oil sharply even though it is currently showing signs of weakness.
Chart: US Crude Oil Daily Timeframe (April 17 – August 24, 2017)
That weakness has come despite news that US crude oil stocks fell last week for an eighth consecutive week to their lowest since January 2016, according to the US Energy Information Administration. Crude inventories fell 3.3 million barrels in the week ending August 18, broadly in line with expectations for a decrease of 3.5 million barrels.
However, the EIA report was offset by news that US oil production hit 9.53 million barrels per day last week, the highest level since July 2015 and up more than 13% from the most recent low in mid-2016.
From a technical perspective, the outlook for oil prices is positive but IG Client Sentiment data paint a slightly different picture. Retail trader data show 60.5% of traders are net-long, with the ratio of traders long to short at 1.53 to 1. In fact, traders have remained net-long since August 14, when US crude traded near $47.76 per barrel; the price has moved 1.3% higher since then. The number of traders net-long is 6.4% lower than yesterday and 9.0% lower from last week, while the number of traders net-short is 29.7% higher than yesterday and 14.3% lower from last week.
We typically take a contrarian view to crowd sentiment, and the fact traders are net-long suggests US crude prices may continue to fall. Positioning is less net-long than yesterday but more net-long from last week. The combination of current sentiment and recent changes gives us a further mixed US crude trading bias.
--- Written by Martin Essex, Analyst and Editor
To contact Martin, email him at martin.essex@ig.com
Follow Martin on Twitter @MartinSEssex
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