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Crude Oil Price Forecast Talking Points:
- WTI Crude Oil Technical Analysis Strategy: deep pullback fails to unseat Bullish bias
- IP-Week sees Trafigura favoring demand outstripping aggressive shale output in H2 ‘18
- Hedge Funds aggressively cut bets on rising WTI by most since October per CoT data
- Trader Sentiment Highlight from IG UK: retail positioning balanced, favoring signal from ICE
The Bears time in the sun may soon be setting. After a nice pull-back alongside the rest of global risk assets in early February, the options market and multiple demand-side views are dominating the market with a bullish outlook continuing for Crude Oil.
Hedge Funds Drop Bullish View With Strongest Selling since October
We recently noted that hedge fund Bullish exposure per the CFTC’s Commitment of Traders report could be a liability when the selling comes. The selling came per the CoT report that showed the strongest shift from bullish to bearish sentiment per Futures contract selling since October. However, the key question, of course, is whether or not a trend of selling has begun or whether the bullish view will resume.
Arguments could be made for either as the Bears seem to focus on the increased aggressive production on the cost-disciplined US E&P firms able to source and extract oil at rates the bake in a profit. However, the Bulls say we haven’t seen the end of inventory drawdowns thanks to an expected large increase in demand.
The Economy Could Continue To Support Crude Oil
This week will see International Petroleum week kick off in London. A key view from Commodities Trading firm, Trafigura’s chief economists, Saad Rahim offers Bull's support. Per Rahim, crude inventories are set, “ for a significant draw in 2H 2018.” Trafigura’s view is backed by demand from China after a report from China General Administration of Customs showed China’s oil imports in January were the most in the world since 2010 when Crude was accelerating higher to and above $100/bbl.
Trafigura’s economist also adds that OPEC+ is unlikely to pullback from the production cut agreement that has done a brilliant job in achieving their stated aim of bringing inventories toward the long-run median.
Technical Levels for WTI Crude Oil
WTI Crude Oil has risen nearly 8% off the early February low, and the H4 Ichimoku chart shown below is on the verge of a Bullish momentum breakout. The chart resistance focus has been in the price zone that accompanies 62.70/63.50, which were spikes lower on the pullback from January high at $66.59.
The price of crude oil has recently moved above Ichimoku Cloud on the H4 chart, but the lagging line that visualizes momentum is yet to follow through. A breakout of the lagging line above the cloud would put the burden of proof back on the bears where it has laid since September and favor a retest of the January 25 high.
Brent Crude Oil options are seeing high activity on $70 calls per Bloomberg for the May/June contract that would align with the January 25 high. Another bullish development is the resumption of widening backwardation between the WTI December 2018 – WTI December 2019 futures contract. Backwardation tends to favor short-term demand outweighing supply that favors Bullish trend support.
Unlock our Q1 18 forecast to learn what will drive trends for Crude Oil at the open of 2018.
Chart Watch: Crude Price Comes Down To Ichimoku Support
Chart created by Tyler Yell, CMT. Tweet @ForexYell for comments, questions
WTI Crude Oil Insight from IG UK Client Positioning
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. Positioning is less net-long than yesterday but more net-long from last week. The combination of current sentiment and recent changes gives us a further mixed Oil - US Crude trading bias.
Bottom Line: Despite a bit of a washout in Bullish institutional positioning, Crude Oil is rising and sentiment per options and fundamental data backs the rise. Fighting the multi-month uptrend remains ill-advised.
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Written by Tyler Yell, CMT, Currency Analyst & Trading Instructor for DailyFX.com
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