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Technical Crude Oil Price Talking Points:

  • The ONE Thing: Consolidation looks set to give way to trend continuation after intermarket relationships show limited feedback in December19-December 20 calendar spread jump to 3wk highs.
  • Per IGCS, Crude sell signal weakness, but long-term bias remains negative
  • The Technical Picture: The sideways bounceis now looking like a corrective triangle that may produce a strong resumption of the October-November decline. Resistance holds at early 2017 highs at $55/bbl that may be a new polarity point.

Technical Forecast for : Neutral

crude oil

Chart Source: Pro Real Time with IG UK Price Feed. Created by Tyler Yell, CMT

Is that it for a bounce? An OPEC meeting, softer Fed rhetoric, and seemingly positive trade war resolution developments appear only enough to have stopped the bears from piling on the crude oil short train.

A spread that has supported the energy market for most of the year and led to terrific insights on the way down was the WTI December 2019-December 2020 spread, which shifted from backwardation to Contango in the bear market and recently back to backwardation. However, despite the spread sitting at 3-week highs and with a backdrop of much lower crude oil volatility, an unwillingness to buy.

Backwardation is Back, But Buying Is Not

crude oil

Data Source: Bloomberg

You can see how despite the excellent signaling power for most of 2018. The recent bounce to three-month highs in the contract spread has not translated to strong buying the front-month crude oil contract shown in red.

The spread is seen as an indication of tight supply with higher levels on the blue line or oversupply with lower levels of the blue line above.

The combination of the charts above shows that bulls have gotten punched in the gut, and the macro-economic background is making them think over whether or not they’re willing to get back in the ring.

Sentiment Bearish Bias Weakens But Remains In Play

crude oil

Data source: IG Sentiment

Oil - US Crude: Retail trader data shows 84.3% of traders are net-long with the ratio of traders long to short at 5.37 to 1.

In fact, traders have remained net-long since Oct 11 when Oil - US Crude traded near 7513.1; price has moved 31.4% lower since then. The number of traders net-long is 14.2% lower than yesterday and 7.5% lower from last week, while the number of traders net-short is 14.9% higher than yesterday and 9.9% 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.

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 Oil - US Crude trading bias.(emphasis mine.)

---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 trading educational resources. Read more of Tyler’s Technical reports via his bio page.

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