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Crude Oil Price Forecast: Oil Closes at 2017 Lows on EIA Report

Crude Oil Price Forecast: Oil Closes at 2017 Lows on EIA Report

2017-06-14 20:53:00
Tyler Yell, CMT, Currency Strategist
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Will Shale production spoil OPEC’s best-laid plans? To see our thoughts, access the DFX Oil forecast here.

Talking Points:

  • Crude Oil Technical Strategy: price begins pushing below LT price channel support
  • Crude tumbles awfully close to new 2017 lows, current 2017 low at $43.79/bbl
  • IGCS Sentiment highlight: combination of current sentiment and recent changes gives us a stronger Oil - US Crude-bearish contrarian trading bias

The price of WTI Crude Oil fell to the lowest level in five weeks on Wednesday and came awfully close to the lowest level since November on an EIA report showing that crude supplies fell, but U.S. products like gasoline rose while demand fell. You can see on the chart below that this was enough to put further pressure on the price of Oil. Additionally, the USD, which tends to be inversely correlated to the price of oil strengthened after the Federal Reserve raised rates and stuck to a rather hawkish forecast on Wednesday.

In addition to the weekly inventory report from the EIA, a report from the IEA showing that non-OPEC supply is likelyset to outstrip global demand growth in 2018. The report adds to the widening of December 2017-December 2018 spreads resulting in Contango, which develops when the expected future spot prices trades at a discount to the futures price. This environment tends to give credence to the bearish view and arises when people are willing to pay a premium not to hold the commodity but to accept delivery at a future time, which indicates a supply gut or expenses incurred while holding the commodity until demand rises and it is used.

You’ll notice the price is extended to the downside, but that doesn’t mean that a pop is imminent given the difficult fundamental picture developing. Lingering Contango could keep a lack of bids, and a possible desire for US shale producers to hedge on any rises in spot price could lead to a natural lid on prices. The 5% drop last week on June 7 remains an important pivot and the days open near $48/bbl will remain key resistance on the chart. As long as price remains below this resistance point alongside the weekly opening range high of $46.69/bbl will favor a move down toward $40/bbl as we trade below the bullish rising channel support.

JoinTylerin hisDaily Closing Bell webinars at 3 pm ETto discuss tradeable market developments.

Crude Oil continues lower and breaks below price channel support

Crude Oil Price Forecast: Oil Closes at 2017 Lows on EIA Report

Chart Created by Tyler Yell, CMT

Crude Oil Sentiment:

Oil - US Crude: Retail trader data shows 83.8% of traders are net-long with the ratio of traders long to short at 5.16 to 1. In fact, traders have remained net-long since Apr 19 when Oil - US Crude traded near 5336.6; price has moved 15.8% lower since then. The percentage of traders net-long is now its highest since Oct 07 when it traded near 4989.2. The number of traders net-long is 13.6% higher than yesterday and 23.4% higher from last week, while the number of traders net-short is 12.8% lower than yesterday and 12.8% 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. (Emphasis Mine)

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Shorter-Term US OIL Technical Levels: Wednesday, June 14, 2017

For those interested in shorter-term levels of focus than the ones above, these levels signal important potential pivot levels over the next 48-hours.

Crude Oil Price Forecast: Oil Closes at 2017 Lows on EIA Report

Written by Tyler Yell, CMT, Currency Analyst & Trading Instructor for DailyFX.com

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