Crude Oil Price Forecast Talking Points:
- WTI Crude Oil Technical Analysis Strategy: Bullish continuation anticipated in a volatile environment
- IEA focuses on negative supply shocks from Venezuela as US inventories drop below 5-year average
- Trader Sentiment Highlight from IG UK: retail short positions favors further advances
There may be too many geopolitical developments to price in as a potential ‘what-if’ range of WTI Crude. Earlier today, IEA Executive Director Fatih Birol on a Bloomberg Interview tagged the sharp drop in Venezuelan output, which has turned the economically strained company to a net-importer as a key concern for the market.
The major supply crisis has caused the physical supply market to tighten and has said policymakers wanting a balanced market should be careful what they wish for as consequences would be dire if prices increase significantly.
Unlock our Q2 18 forecast to learn what will drive trends for Crude Oil in a volatile Q2
US Crude Inventories Are Below 5-Yr Average
Data source: Bloomberg, EIA
WTI volatility has hit a two-month high ahead of weekly EIA Crude Oil Inventory reports, which has shown a persistent decline in the US inventories that recently fell below the 5-year average of 424,000 barrels. The price of crude has been rising on falling inventories, which is supported by calendar spreads in the futures market that shows a premium for buying and holding now as opposed to waiting to buy later.
IEA Flags Venezuela As Key Oil Price Risk
Data source: Bloomberg, OPEC
While much has been made of Middle East tensions and rightfully so, traders should also remember that Venezuela continues to face the risk of further significant output losses this year due to their domestic economic crises.
OPEC+ Meeting Preceded by ‘Chatter’ On Possible Output-Cut Extension
Despite resounding successes from the current Oil production curbs from OPEC and strategic alliances like Russia, the idea is being spread that a further output-cut extension could be discussed. The risk premium has allowed Crude Oil to trade to the highest levels since December 2014 that is currently deflating.
The meeting will take place on Friday in Jeddah with energy ministers from Saudi Arabia, Russia, UAE, Oman, Algeria, Kuwait, and others that will undoubtedly discuss the Aramco offering and the increased production from the US shale producers who continue to add wells. The official meeting that has the potential to formally announce an extension will take place in June.
Technical Focus Looks to Price > Ichimoku Cloud, Bullish Channel
The broad bullish trend on Crude Oil traded to the top of a price channel that began in Mid-February. The price has pulled back from resistance, but fundamental factors continue to support the overall bullish view.
Without a sharp break below the channel base near $63/bbl, and further to $61.8/bbl (April opening range low), traders should anticipate a resumption to new highs that could continue to trade to the channel top impulsively.
Chart Watch: Crude Price Continues To Ride Channel Top, Bullish Shocks Still Likely
Chart created by Tyler Yell, CMT. Tweet @ForexYell for comments, questions
Insight from IG UK shows us that 38.2% of traders are net-long with the ratio of traders short to long at 1.62 to 1. In fact, traders have remained net-short since Apr 09 when Oil - US Crude traded near 6373.7; the price has moved 4.2% higher since then.
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. (emphasis mine.)
---Written by Tyler Yell, CMT
Tyler Yell is a Chartered Market Technician. Tyler provides Technical analysis that is powered by fundamental factors on key markets as well as t1rading educational resources. Read more of Tyler’s Technical reports via his bio page.
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