Crude Oil Price Forecast: Turning Lower From Key Resistance At $50/bbl
- Crude Oil Technical Strategy: staying away from long exposure below $50.20
- Long-Term range favors move down to $41/$42 if resistance holds and USD finds strength
- Chinese refining cuts processing forecast, showing demand may be cooling
- IGCS Sentiment highlight: Sharp rise in short positions provides contrarian signal to look for upside
There have been signs that supply is being curbed thanks in large part to the cartel known as OPEC. However, their efforts to ensure supply of Brent is brought closer to the long-run or 5-year average is reliant on demand rising. Much of the rise in Oil and other commodities in 2017 has been demand driven as opposed to a reduction is supply. While different commodities will be demanded for different reasons such as gold for the haven trade, agricultures for weather, China has been a key driver for Oil demand this year.
Unfortunately, one measure may show that demand from China is beginning to cool down at a time the seasonal demand from summer may also taper.This could weigh on the price of Crude Oilat a time when technicians are worried about the failure for the price to close the week above $50/bbl.
China’s oil refining (the process by which Crude Oil is converted into usable products) slowed the most since 2014, which may show the economy is cooling off from demand that took metals to aggressive heights not seen in years. Specifically, oil processing at Chinese refineries slipped 4.4% month to month and production similarly fell from China. The State-run China Petroleum & Chemical Corp is the world’s largest refiner, and they are expectingto process 1 million metric tons less than it previously planned over June to August due to weaker demand. WTI Crude Oil fell ~2% on Monday, and we could see a further drop if the US dollar were to strengthen as expectations for how little the Fed may do over the coming year may have fallen too much as discussed on FX Closing Bell.
Give the strong rise in Crude Oil since Q3 began, click here to see the opportunities we’re watching in Oil.
While the fundamental picture is in limbo and may be softening, the technical picture continues to be cautiously bullish, but a further breakdown could show the bearish channel is holding price. A bearish key day reversal developed near $50, a long-held psychological level in the current multi-year bear market, and near the 200-DMA ($49.53).
A close below $48/bbl would further weaken bullish resolve until we see a break above $50.20/40. The overall commodity landscape looks supportive given where we are in the multi-year business cycle, but it’s worth it to be cautious at a time where the USD might bounce in a retracement from a recent sell-off.
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After discouraging demand news from China, Crude Oil dropped ~2% to $47.85/bbl
Chart Created by Tyler Yell, CMT
Crude Oil Sentiment: Net-short crude positions provides contrarian signal to look for upside
The sentiment highlight section is designed to help you see how DailyFX utilizes the insights derived from IG Client Sentiment, and how client positioning can lead to trade ideas. If you have any questions on this indicator, you are welcome to reach out to the author of this article with questions at email@example.com.
Oil - US Crude: Retail trader data shows 46.2% of traders are net-long with the ratio of traders short to long at 1.16 to 1. The number of traders net-long is 9.7% lower than yesterday and 4.7% higher from last week, while the number of traders net-short is 8.5% higher than yesterday and 11.5% lower from last week.
We typically take a contrarian view to crowd sentiment, and the fact traders are net-short suggests Oil - US Crude prices may continue to rise. Positioning is more net-short than yesterday but less net-short 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, Currency Analyst & Trading Instructor for DailyFX.com
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