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Talking Points:
- Crude Oil Technical Strategy: Oil Watching Key Resistance Zone at $34.25-$38.36/bbl
- Intermarket Analysis Turns Focus of Price Support on US Dollar Uncertainty
- WTI rallies the most in 12-yr on perceived profit taking in an oversold market
Last Week’s Impressive Rally, But What Now?
WTI Crude oil has been unable to hold gains so far at the start of the week. Last week’s impressive Thursday-Friday rally had the price of Crude Oil printing a 2-week high on the back of the biggest two-day move higher since the move from the low in late 2008. Crude Oil’s March contract jumped 18% on Thursday and Friday and opened the week with a bullish tone, but has since dropped back toward $30 per barrel on an overall sour risk-tone. Both US Equities closed last week with a gain, which was the first time in four weeks as an unusual correlation between equity and US Oil have emerged.
The Fundamental Story: I Promise To Cut Production If You Do So, First
The resolution of the supply glut may not come anytime soon, which could make it difficult for a sustained rally in Oil to develop absent a sharp drop in the US Dollar. Today, we heard from the head of OPEC, Abdalla El-Badri, who made the following headlines from a conference in London today:
OPEC, NON-OPEC MUST TACKLE OIL SURPLUS TOGETHER: EL-BADRI
ALL MAJOR OIL PRODUCERS MUST `SIT DOWN' TO SOLVE GLUT: EL-BADRI
In essence, OPEC will not make outputs alone. He went on to say, “It is vital the market addresses the issue of the stock overhang,” and he also noted that they hold to see the global demand to rise later this year to ~1.3m b/d alongside with non-OPEC drop in supply to balance the market.
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Key Levels from Here
Last note, we shared that price appeared to be bouncing off a key level of support drawn from an 18-year chart from the nadir to the high, but that the short-term focus of resistance rested on the 2016 opening range. The current corrective zone, where price may be simply coiling up for another move down, is taken from the 38.2-61.8% Fibonacci retracement levels of the 2016 range. This zone marks the $31.75-$34.25 as a high-alert zone for a resumption of the large downtrend. Should the price break above $34.25; attention will then turn to the YTD high of $38.11 before getting overly bearish.
2009 Bearishness in Positions Seen Mean Reverting
Oil still has a lot of pressure on its back, and may continue to fall even lower, which aligns with our Speculative Sentiment Index or SSI. Our internal readings of Oil are showing an SSI reading of +1.1412. 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. If the reading were to turn negative, and price broke above resistance, we could begin looking for further upside toward the YTD high of $38.11.
Sentiment extremes look to be the likely reason for the aggressive rally late last week as Oil bears took their profitable trades off the table. Looking at the CFTC Commitment of Traders report, hedge funds cut their bearish bets on oil ahead of the rally; with speculators' short position, shrinking 8.4 percent in the week ended Jan.19, and likely continued to do so as the price moved higher. An estimated report showed that short positions had doubled to a record 200 million bbls over the past three months.
T.Y.
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