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US Crude Oil Price May Rise Further as Oil Inventories Tumble

US Crude Oil Price May Rise Further as Oil Inventories Tumble

2018-08-23 10:30:00
Martin Essex, MSTA, Analyst
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Crude oil price, news and analysis:

  • Official data released Wednesday showed a far larger than expected drop in US crude stockpiles.
  • After a small fall Thursday, the price of US crude could now be ready to advance further.

Our trading forecasts for Q3 have been published; you can find them here.

And check out the IG Client Sentiment data to help you trade profitably.

Inventories data suggest gains for the US crude oil price

The US crude oil price is marginally easier in Europe Thursday after the previous day’s gains on news that US stockpiles of crude oil slumped by 5.8 million barrels in the week to August 17 – a far larger drop than the 2.0 million barrels predicted by analysts.

In response, the price of crude moved sharply higher but lost some of those gains Thursday. Now, the previous trend higher could reassert itself, particularly if the US Dollar weakens.

US Crude Oil Price Chart, Daily Timeframe (April 12 – August 23, 2018)

Latest US crude oil price chart.

Chart by IG

As the chart above shows, there is plenty of resistance just above the current price both from downward-sloping trendlines and from the 50-day and 100-day moving averages. These could delay an advance near-term but it could come after comments by Federal Reserve Chair Jerome Powell at the Jackson Hole symposium Friday.

With the probability of a quarter-point US rate increase next month now 92.3% judging by futures prices there is a risk that Powell will be less hawkish than expected, weakening the US Dollar and thereby strengthening oil prices.

Crude oil price sentiment

In the meantime, retail trader data show 61.1% of traders are net-long, with the ratio of traders long to short at 1.57 to 1. In fact, traders have remained net-long since July 11, when US crude traded near $72.51; the price has moved 6.7% lower since then. The number of traders net-long is 12.1% lower than yesterday and 15.4% lower from last week, while the number of traders net-short is 29.9% higher than yesterday and 52.5% higher from last week.

At DailyFX, we typically take a contrarian view to crowd sentiment, and the fact traders are net-long suggests US crude prices may continue to fall. Yet traders are less net-long than yesterday and compared with last week. Recent changes in sentiment warn that the price may soon move higher despite the fact traders remain net-long.

Latest US crude oil positioning.

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--- Written by Martin Essex, Analyst and Editor

Feel free to contact me via the comments section below, via email at martin.essex@ig.com or on Twitter @MartinSEssex

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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