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Crude Oil Price Forecast: Brent Premium Favors OPEC Induced Volatility

Crude Oil Price Forecast: Brent Premium Favors OPEC Induced Volatility

2018-05-24 18:45:00
Tyler Yell, CMT, Currency Strategist
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Crude Oil Price Forecast Talking Points:

  • The ONE Thing: WTI-Brent spread hits the widest settlement in three-years showing oil production in the US is weighing on WTI while global demand is strong. Local grades of US oil are also rising thanks in large part to Venezuelan oil dropping in availability.
  • Options data show Brent Bulls have higher prices and dollar signs in their eyes: per Bloomberg, Brent options saw $90+ strikes. While the bet on higher prices does show strong underlying demand, the RSI readings may also align with a temporary pull-back for the strength resumes likewe see on WTI. A key risk to the bullish Brent view is that OPEC+ may soon decide to roll production curbs.
  • Recent Brent Crude Oil Forecast: Brent Crude Oil Jumps Again As Lower-For-Longer View Is Dying
  • WTI Crude Oil Technical Analysis Strategy: A pull-back is in play, but it’s hard to call a top as Brent remains in demand, and China has shown up as a buyer of US energy amid US-Sino trade talks.
  • Access our recent Crude Oil Fundamental Forecast here

Technically Speaking: WTI Crude Oil Levels

Resistance: $71.68-72.88 per barrel – 9-day midpoint, YTD high

Spot: $70.70/bbl

Support: $69.85-67.56 per barrel – 26-day midpoint, a pre-Iran announcement from US President Trump

Daily NYMEX WTI – Crude Oil: Falls From Rising Wedge

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Chart Source: Pro Real Time with IG UK Price Feed. Created by Tyler Yell, CMT

Despite falling from a rising wedge, WTI crude continues to trade above multiple forms of support most notably, the Ichimoku Cloud.

Additionally, traders see Brent trade at the highest premium to WTI since 2015 after a broad build of US inventories as reported by the weekly EIA Inventory Report. Given the premium that Brent is now enjoying, many wonder if this will give OPEC and its allies the needed incentive to roll-back previously held production curbs.

WTI Trades At Sharpest Discount To Brent Since 2015, Nearing $9/bbl

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Data Source: Bloomberg

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

Time For OPEC+ To Cut Back On Production Curbs?

According to Alexander Novak, Russia’s Energy Minister, it’s become time for Russia to decide if the state of the market with $80/bbl Brent justifies gradually scaling back oil-output cuts. OPEC and allies together called OPEC+will meet in June and rumor about a potential decision to leave the production curbs may bring a sharp rise in crude volatility.

Regardless of the rumors, do not expect the bulls to go quietly into the night as $90-100 option calls, a bet on higher prices in the future, are active per Bloomberg.

While energy is soft in early morning trading, metals and haven currencies got a boost amid further weakness in emerging markets and after President Trump formally canceled the summit with North Korea. Gold rose back above $1,300/oz. Given the recent bid in JPY, a move higher in Gold will likely be in focus my macro investors as a sign of a spill-over in risk-off sentiment.

Recommended Reading: 4 Effective Trading Indicators Every Trader Should Know

More For Your Trading:

Are you looking for longer-term analysis on Crude Oil and other popular markets? Our DailyFX Forecasts for Q2 have a section for each primary currency, and we also offer an excess of resources on USD-pairs such as EUR/USD, GBP/USD, USD/JPY, AUD/USD. Traders can also stay up with near-term positioning via our popular and free IG Client Sentiment Indicator.

Forex Trading Resources

DailyFX offers a surplus of helpful trading tools, indicators, and resources to help traders. For those looking for trading ideas, our IG Client Sentiment shows the positioning of retail traders with actual live trades and positions.

Our trading guides bring our DailyFX Quarterly Forecasts and our Top Trading Opportunities, and our real-time news feedhas intra-day interactions from the DailyFX team. And if you’re looking for real-time analysis, our DailyFX Webinars offer numerous sessions each week in which you can see how and why we’re looking at what we’re looking at.

If you’re looking for educational information, our New to FX guide is there to help new(er) traders while our Traits of Successful Traders research is built to help sharpen the skill set by focusing on risk and trade management.

---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 trading educational resources. Read more of Tyler’s Technical reports via his bio page.

Communicate with Tyler and have your shout below by posting in the comments area. Feel free to include your market views as well.

Discuss this market with Tyler in the live webinar, FX Closing Bell, Weekdays Monday-Thursday at 3 pm ET.

Talk markets on twitter @ForexYell

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

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