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Talking Points:

  • WTI Crude Oil Technical Strategy: Buying Dips Above $54.85/bbl
  • WTI backwardation aligns with close above 200-WMA on Friday at $58.18
  • Sentiment Highlight: the ratio of traders short to long at 1.48 to 1, favoring upside

Crude Oil backed off of 2-year highs after alarm bells rang on Bullish fervor. Multiple signs that Crude Oil was overbought likely caused institutions to take some money off the table and wait for signs that OPEC is set to provide a landscape for Crude Oil to remain supported.

While the pace of Crude gains should slow as we near $60, Bears will likely be disappointed by trying to fight this trend that is showing the strongest internal readings since 2014. A key measure of the future spreads showed a front-month premium of the January 2018 contract compared to the February 2018 contract known as backwardation. Backwardation may cause OPEC to take a victory lap as it shows that supply is losing to demand that could see a further drawdown of global oil stockpiles that further support price. Wednesday’s EIA Crude Oil inventory report ahead of the Vienna meeting of OPEC and strategic allies on Thursday will be looked at to confirm recent bullish fundamental data.

The technical picture shows potential overheating, but there is littleargumentfor an outright short crude oil position. The price of WTI Crude oil is expected to attract buyers above $54.89 (mid-Nov. low) on dips. Initial resistance was expected at the 1.618% Fibonacci extension at 59.08, and that is where price recently paused. A resumption higher above $59.08 would target a move to $62.

WTI Crude Oil is currently trading above the 5-,8-, and 13-DMAs last week and settled on November 24 above the 200-WMA for the first time since mid-2014. A break below $54.89 would open broader concerns of a short-term top, but above this level, buying dips remains the preference.

Unlock our Q4 forecast to learn what will drive trends for Crude Oil through year-end!

Crude Oil Price Forecast: Fall From 2-Year High Shouldn’t Worry Bulls

Chart created by Tyler Yell, CMT. Tweet @ForexYell for comments, questions

WTI Crude Oil Insight from IG Client Positioning: ratio of traders short to long at 1.48:1, favoring 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 tyell@dailyfx.com.

Crude Oil Price Forecast: Fall From 2-Year High Shouldn’t Worry Bulls

Oil - US Crude: Retail trader data shows 40.4% of traders are net-long with the ratio of traders short to long at 1.48 to 1. In fact, traders have remained net-short since Oct 25 when Oil - US Crude traded near 5205.9; price has moved 11.4% higher since then. The number of traders net-long is 0.2% lower than yesterday and 8.6% lower from last week, while the number of traders net-short is 12.3% lower than yesterday and 5.0% higher 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 less net-short than yesterday but more net-short from last week. The combination of current sentiment and recent changes gives us a further mixed Oil - US Crude trading bias (emphasis added.)

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

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