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Crude Oil Price Forecast: Breakout on Saudi Has Fundamental Support

Crude Oil Price Forecast: Breakout on Saudi Has Fundamental Support

Tyler Yell, CMT, Currency Strategist

Crude Oil Price Forecast Talking Points:

  • WTI Crude Oil Technical Analysis Strategy: Bullish continuation anticipated in a volatile environment
  • Crude oil price action is being dominated by geopolitical headlines surrounding the Middle East
  • Trader Sentiment Highlight from IG UK: retail short positions jump by 34% favoring price advances

If a crude oil trader were to look just at the weekly EIA Crude Oil Inventory Report, they’d likely assume that Crude would be trading lower. If they acted on that assumption, they would also be in the red on the trading day so far.

Instead, a handful of geopolitical headlines to Crude Oil to the highest levels since 2014 as the EIA weekly data took a bad seat, and at a good time too for crude oil bulls.

Unlock our Q2 18 forecast to learn what will drive trends for Crude Oil in a volatile Q2

Handful of Geopolitical Headlines Lead Way for Crude to Trade Higher

Commodities are naturally susceptible to supply and demand shocks, and few things cause such shocks as potential attacks on large energy-producing regions. On Wednesday, around the time of the weekly EIA Crude Oil Inventory report, a Bloomberg Hot Headline flashed that ‘Saudi intercepted a missile over Riyadh.’

The same week that the US has threatened to pose sanctions on OPEC’s third largest supplier, Iran this report showed that missiles from Yemen did target Saudi’s defense ministry per Reuters.

Saudi Arabia Map, Yemen To The South

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Source: EIA

The map above from the EIA shows how Yemen is targeting Saudi’s pipelines and key infrastructures in Riyadh. Earlier this week, news also broke that a Saudi oil tanker was attacked off Yemen showing the fragile political environment currently at hand.

In addition to the headline of the Saudi missile interception, reports surfaced on Wednesday that Trump is pledging to attack Syria. Traders should also remember that Venezuela continues to face the risk of significant output losses this year due to their domestic economic crises.

EIA Data Shows Large Inventory Build, Mirroring Chinese Data

While the geopolitical pictures are overshadowing the EIA Crude Oil Inventory Report, traders should note that US production is up to eclipse the 10 million barrels per day mark alongside Crude Oil inventories that rose 3.31 million barrels per the EIA.

This week’s EIA headlines mirror data from the Shendong port in China showing record stockpiles potentially indicating a stall in demand. Despite the headline negative inventory data, Crude and Brent were up by more than 2% on Wednesday.

Technical Focus Looks to Price > Ichimoku Cloud, Bullish Breakouts

The broad bullish trend on Crude Oil paused for much of Q1. However, the initial days of Q2 seem to show that the consolidation may be over and that the broader bullish pattern and momentum are set to continue.

Without a sharp break below $61.8/bbl (April opening range low), traders should anticipate a resumption to new highs with the potential for further bullish shocks to take the price of WTI Brent toward $70.16, the 100% Fibonacci extension from the 2016 range extended from the 2017 low at $42.07/bbl.

Chart Watch: Crude Price Breaks Out To Highest Level Since 2014, Bullish Shocks Still Likely

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

Ichimoku is applied to this chart above. If you want to learn more, I'd recommend reading the FREE guide I put together here. Just click 'Advanced Guides.'

WTI Crude Oil Insight from IG Client Positioning

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Insight from IG UK shows us that retail trader data shows 34.9% of traders are net-long with the ratio of traders short to long at 1.86 to 1. The number of traders net-long is 20.8% lower than yesterday and 1.1% higher from last week, while the number of traders net-short is 38.2% higher than yesterday and 23.4% 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. 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 (emphasis mine.)

Bottom Line: Selling Crude may feel good upon entering as the price is trading at the highest level in over three years, but the potential for bullish shocks remain and favor holding a bullish bias.

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

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Contact and discuss markets with Tyler on Twitter: @ForexYell

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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