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Crude Oil Faces Pivotal Moment As IEA Sees Strong Oil-Demand Growth

Crude Oil Faces Pivotal Moment As IEA Sees Strong Oil-Demand Growth

Tyler Yell, CMT, Currency Strategist

Key Takeaways:

  • Crude Oil technical strategy: watching price test 200-DMA/ $50/bbl psych level
  • WTI Crude Oil gap to Brent Oil widens by most in 2-years
  • 200-DMA for Crude Oil at $51.06, trendline resistance at $49.79/bbl
  • IGCS Highlight: USOIL sharp decrease in net-short position keeps ST focus higher

Crude Oil appears determined to close the gap between the global oil benchmark, Brent Crude Oil. The week, the spread or difference between Brent and WTI was the widest in two years.On Wednesday, Brent’s premium over WTI to reach $5.62 a barrel compared to the 18-month average of $2-$3. Much of this can be explained by Hurricane Harvey as highlighted by Wednesday’s EIA Crude Oil Inventory report. They showed the Refinery Utilization fell to 77.7%, the lowest since 2010. Gasoline, on the other hand, was in major demand as mandatory evacuations took hold across key states in the storm’s path.

The gasoline draw brought about the largest drop in gasoline stockpiles since 1990 as utilization fell at the same time that demand for refined products jumped. Another insight from the EIA report was that US Crude imports plunged as multiple ports were blocked.

The International Energy Agency report (different from EIA Crude Oil inventory) should give a reason for optimism, which will need to be confirmed by price action (levels below). The view that global demand is forecasted to rise by 1.7% or 1.6 million bpd, the most since 2015, which is thanks to stronger consumption expectations in Europe & the U.S.

As demand forecasts shift higher, check out our free forecast on Crude Oil prices

When looking at crude oil shorts, there is now reason to see how the picture could turn technically Bullish. Crude Oil has traded in 2017 in a pattern and series of lower-lows and lower-highs solidifying a downtrend. The positive component of the chart is that price has rebounded aggressively from the 2017 low of $42, and much of the price action has been an oscillation between $45-50/bbl. The specific price pivots are a support of $45.38 and resistance of $50.20.

A break of either of those levels will help to form the focus going forward. Naturally, we’ll look to Intermarket confirmation such as a strong or weak USD, and how other commodities are doing. Recently, we’ve seen strength in base metals, but recent reports from future spreads show that copper, one of the hottest performing commodities of late has benefitted from speculative fervor as opposed supply and demand.

Daily USOil Chart:

Crude Oil Faces Pivotal Moment As IEA Sees Strong Oil-Demand Growth

Chart Created by Tyler Yell, CMT

US Oil Insight from IG Client Positioning: sharp decrease in net-short position keeps ST focus higher

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 tyell@dailyfx.com.

Crude Oil Faces Pivotal Moment As IEA Sees Strong Oil-Demand Growth

Oil - US Crude: Retail trader data shows 52.4% of traders are net-long with the ratio of traders long to short at 1.1 to 1. In fact, traders have remained net-long since Aug 14 when Oil - US Crude traded near 4840.3; price has moved 1.9% higher since then. The number of traders net-long is 8.9% lower than yesterday and 3.1% higher from last week, while the number of traders net-short is 32.0% higher than yesterday and 9.5% higher 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. Yet traders are less net-long than yesterday and compared with last week. Recent changes in sentiment warn that the current Oil - US Crude price trend may soon reverse higher despite the fact traders remain net-long (emphasis added.)

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

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