Crude Oil Futures Plunge as Trump Considers SPR Release - US Market Open

2018-07-16 13:29:00

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MARKET DEVELOPMENTS – CRUDE PRICES PLUNGE AS TRUMP CONSIDERS SPR RELEASE

US equity futures trading relatively flat (DJIA +0.1%, NASDAQ 100 +0.1%, S&P 500 flat) as markets digest a slew of corporate earnings. Energy stocks are the worst performing sector and have weighed on European bourses, most notably the commodity heavy FTSE 100, which is underperforming. Bank names performing well after Deutsche Bank reported they expect their earnings will top consensus.

Crude oil: Sell off observed in oil prices with losses of over 2.5% following reports late Friday that Trump is considering tapping into US emergency stockpiles with a potential release of 5-30mln barrels before the US midterms in November, in order to tackle high gasoline prices. Elsewhere, Mnuchin stated that the US may consider exemptions in certain cases if countries could not reduce Iranian oil purchases to zero to meet sanctions deadline. In turn, this exacerbated the losses in oil prices with WTI crude futures breaking below last week’s lows at $68.35 with the 100DMA at $68.05 now under threat.

USD: The Dollar is a touch softer this morning with losses of 0.2%, having continued the pullback from Friday, after yet another failure to consolidate above the 95 handle. Alongside this, the greenback is also on edge prior to Fed Chair Powell’s semi-annual testimony which could highlight concerns over the escalating trade war between the US and China. In terms of US data, retail sales released today were largely in line with expectations, however, materially lower from the prior months.

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IG Client Sentiment: US Oil Chart of the Day

Oil - US Crude: Retail trader data shows 54.8% of traders are net-long with the ratio of traders long to short at 1.21 to 1. The number of traders net-long is unchanged than yesterday and 30.1% higher from last week, while the number of traders net-short is 14.3% lower than yesterday and 35.6% lower from last week.

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.

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