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Crude Oil Price Forecast: EIA Inventory Backs Bull Market Narrative

Crude Oil Price Forecast: EIA Inventory Backs Bull Market Narrative

Tyler Yell, CMT, Currency Strategist

Bullish Crude Oil Price Talking Points:

  • The ONE Thing: It’s a bull market, ya know.” Those words were spoken by Old Turkey Mr. Partridge in the trading classic, Reminiscences of a Stock Operator ring as true as ever though they were originally penned nearly 100 years ago by Edwin Lefèvre. In short, all signs are currently leading to a bullish H2 2018 for crude as demand exceeds forecasts and bottlenecks and tariffs are widening the output gap from the potential leading to a tighter market.
  • WTI Crude Oil Technical Analysis Strategy: The drop in Crude Oil of ~12% in mid-June was short-lived,and the Bulls appear to be back in town. Crude has recently traded to new three-year highs with pull-backs to be seen as opportunities as opposed to tops.

Key Technical Levels for WTI Crude Oil:

  • Resistance: $77 per barrel – 61.8% retracement of 2014/2016 price range
  • Spot: $72.83/bbl
  • Support: $63– June low, key rejection off lagging line Ichimoku cloud support

Crude Oil Fundamental Market Update

The end of June has been kind to crude Bulls. In short, the curve has jumped meaning future prices are higher across the curve through 2026. Wednesday saw a surprising inventory data print from the EIA, which is putting the memory of a flattening curve caused by perceived oversupply in the memory bank and no-longer as a threat.

In addition to the positive inventory data point, US president Trump and his crew have successfully discouraged buyers of Iranian crude from renewing their contracts after OPEC decided they would roll-back their production curbs.

The imposition of sanctions from the US on Iranian crude has re-introduced tightening to the market alongside the stall in Canadian oil sands production and reported bottlenecks in the shale regions that are preventing buyers from getting their deliveries.

Physical Market Tightens Again Helping The Bull's Case

Derivatives Spread in Crude Oil Trading Bullish Market.

Data source: Bloomberg

The chart above shows the calendar spread between December 2018 and December 2019 WTI futures. A higher number indicates a tightening market, and you can see it overlaid on the front-month contract.

In short, you can see that the tightening has re-emerged, through lower than it was in April, and as such, the price pressure is also re-emerging and likely shouldn’t be fought.

Positioning May Favor Further Crude Gains

Institutional Positioning Data per CFTC Commitment of Traders Favors Crude Bulls

Data source: CFTC, Bloomberg

The chart above should give hope to the bulls. In short, it shows that despite a reduction of long Brent futures positions by institutions by nearly 40%, the front-month contract has resumed its gains higher (blue area.)

Should the bulls re-engage their bullish exposure to the same level or higher as in April, the price could make a move toward the 61.8% retracement of the 2014-2016 range at $77/bbl.

Daily NYMEX WTI – Prices Breakout after EIA data confirms Bull’s Narrative

Technical Analysis Crude Oil

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

The price of Crude oil aggressively rebounded toward the end of June to bring price toward the YTD high of $72.88/bbl.

The forceful move higher off $63 gives traders a broader support point to give a bias filter. Should price continue to trade above $63/bbl, it’s difficult to confidently call a top with the above-mentioned data. On a break below $63, we may be moving to a period of consolidation similar the period beginning in June 2017.

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

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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