Crude Oil Price Forecast: EIA Inventory Backs Bull Market Narrative
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.
- Access our recent Crude Oil & Macro Fundamental Forecast here
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
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
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
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.
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---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.
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