Crude Oil Price Forecast Talking Points:
- WTI Crude Oil Technical Analysis Strategy: buying dips above support $54.85/bbl
- EIA Crude Oil Inventory Report shows US production is slowing
- Trader Sentiment Highlight from IG UK: bearish bias developing from contrarian indicator
The trend of a higher crude oil is becoming a familiar theme in global markets. With a full week of trading in the books for 2018, WTI Crude Oil has managed to trade at 3-year highs with the highest intraday level traded at since 2014.
In a world where crypto currency momentum seems to defy physics, Crude Oil’s bid does not appear to be purely speculative fervor. Instead, there has been a steady drop in U.S. crude stockpiles backed by refiner demand. The drop in stockpiles has lead to backwardation where front month futures contracts are receiving a premium over later dated future contracts. In a commodity market, backwardation is a way of using the financial market’s collective intelligence to signal market tightening, which is backed by OPEC’s production cuts and steady global demand.
The December 2018 Brent Crude Oil futures contract is currently at a $3.63/bbl premium to the December 2019 contact. The demand is aligning with price support. The irony of the current state of the Oil market is that things are looking too good to some. Iran's Oil Minister, Bijan Namda Zanganeh recently said, "Members of [OPEC] are not keen on increased Brent crude prices above $60/bbl because of shale oil." Prices of Brent Oil's front month contract reached an intraday high of $69.37 on Wednesday.
EIA Crude Oil Inventory Report – January 10
The message behind the weekly inventory report out of the United States was that the overall petrol glut is continuing to shrink, and has done so for the eighth straight week. The US Crude Inventory drop registered at 4.95m barrels per the EIA.
Of course, traders are often looking for the next item to round the corner, and that is looking to individual crude products that refiners have been so aggressively turning into usable products, which are not being sold downstream as fast as an oil bull would hope.
Either way, trader should think twice or more about fighting the strength seen in Crude Oil. Wednesday saw Crude trade above $64 with Brent within an whisper of $70 and backwardation explained above continues to support the backdrop.
Technical Levels for WTI Crude Oil
After topping the 2015 high on Tuesday, short-term price support can be found at prior resistance at $59.05, which was a price target that price eventually broke through in late December (1.618% Fib Expansion off 2017 low.) A break below $59.05 would indicate the immediate trend has shifted to neutral, but it would likely take a break below $55.83 to shift from neutral to medium-term bearish.
Without backwardation converting into Contango (front month future price < back month future price) and price breaks below $59.05, traders would do well to anticipate further gains.
Unlock our Q1 18 forecast to learn what will drive trends for Crude Oil at the open of 2018.
Chart Watch: Price Moving toward technical resistance, selling not favored
Chart created by Tyler Yell, CMT. Tweet @ForexYell for comments, questions
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. Traders are further net-short than yesterday and last week, and the combination of current sentiment and recent changes gives us a stronger Oil - US Crude-bullish contrarian trading bias.
Written by Tyler Yell, CMT, Currency Analyst & Trading Instructor for DailyFX.com
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