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WTI Crude Oil Price Forecast: The Unthinkable $30 Level Approaches

WTI Crude Oil Price Forecast: The Unthinkable $30 Level Approaches

2016-01-12 15:05:00
Tyler Yell, CMT, Currency Strategist
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Talking Points:

Are you here to pay your respects for Oil? 2016 has surprisingly started off worse than 2015 for 2 main reasons. China is in more economic trouble than we thought and Oil producers are pumping more than they should give the economic backdrop. Now, Oil hovers around $30 and the message being sent now by investment banks to their clients is that a move below $30 could send ~33% of US Producers into bankruptcy. Currently, Hedge funds are positioning themselves to brace for more losses as they hold their largest net-short bet across raw materials in 10 years. Today, we heard the ‘Sell Everything’ warning from one specific bank as 2016 is expected to be a cataclysmic year as we learn more about China, and what Central Banks plan to do next. Everything, they said, but high-quality bonds.

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The close on January 11, 2016 was the lowest close in 12 years. While price may move marginally higher from here, the YTD high of $38.36 will be resistance with many sell-side desks on Wall Street looking at the upper $20/barrel range as the more probable next level. Without a change in the fundamentals and a continued bid in the US Dollar that is taking the US Dollar Index toward its own 12-year highs, Crude oil prices will likely remain low lower. For now, the zone around the August 24 low of $37.73 up to the YTD intraday high of $38.36 is resistance, and until price closes above that level, the downside remains favored as the macro picture favors further selling.

We have cleared through the downside targets recently shared with you. The price targets look below the current low of $30.19/bbl toward the ~$29 level. Of course, between there, you have the psychologically important $30 support, but in a strong downtrend like we are in now. Support is made to be broken and that is likely just what will happen. The warning that oil may continue to fall even lower as inventories swell remains appropriate and China pushes up the US Dollar by weakening the Yuan aligns with our Speculative Sentiment Index or SSI. Our internal readings are showing an SSI reading of +1.783.We use our SSI as a contrarian indicator to price action, and the fact that the majority of traders are bullish provides a signal that US Oil may continue lower.

T.Y.

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WTI Crude Oil Price Forecast: The Unthinkable $30 Level Approaches

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