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Crude Oil Price Forecast: Institutions, Trade War Threats Drop WTI

Crude Oil Price Forecast: Institutions, Trade War Threats Drop WTI

2018-08-08 20:30:00
Tyler Yell, CMT, Currency Strategist
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Crude Oil Price Forecast Key Points:

  • The ONE Thing: Demand concerns are not going away. Institutions per the CFTC are reeling in their bullish exposure, and Wednesdays nearly 4% drop will likely continue the trend of position squaring. The EIA Weekly Crude Oil Inventory Report showed a smaller draw than expected and the front-month WTI contract closed at the lowest level in six weeks on Wednesday.
  • Crude oil may see volatility and not the bullish kind that has preceded in 2018 after a quiet open in August and the end of US driving season as the ever-present dispute of US and China in the Trade War puts downward pressure on the commodity bloc as a whole.
  • WTI Crude Oil Technical Analysis Strategy: Crude oil faces big levels at $66/63, and a break below favors further selling as extreme positioning and middle east tensions were unable to lift crude much beyond $70.
  • Access our latest Crude Forecast for Q3 2018 here

KEY TECHNICAL LEVELS FOR WTI CRUDE OIL:

  • Resistance: $69.98– July 30 high
  • Spot: $65.99/bbl
  • Support: $63.41– June low preceding June 18-July 3 breakout to new 3yr highs

Institutions May Pull Back, More May Be On The Way

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Source: CoT – USD Sees Net Speculative Buying for 15th Week in a Row

Institutional positions long crude were at historical extremes on the back of record high compliance of OPEC + production curbs, and WTI appears to have lost the impulsively bullish look. Now, the focus will turn to the US Economic growth engine to see if fiscal policy and improvements in US energy trade balance can help revive the price of crude oil.

If not, the best returns QoQ may be in the record books, and the risk may be returning to the downside.

Sanctions on Iran remain, but if demand is not enough to soak up the new oil, it may not matter enough.

Daily NYMEX WTI – Crude Drops Like A Stone Below 100-DMA

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

To unpack this chart, you should know that the impulsiveness has lost its momentum. A break below $63 could mark the medium-term end to a multi-year rally.

Historically, the move off the 2016 low sub-$30 matches cleanly the pattern in 2012-2014 before the crash. While a crash is not the favored view, traders should watch for a breakdown if the pattern has any semblance of the follow through move in 2014.

Resistance at $70/bbl would invalidate the bearish view that I’ve formed based on extreme positioning and the notion the leading engine of economic growth, the US is service-based, unlike China in 2009-2012 that was lifting oil with demand for oil due to physical assets.

Unlock our Q3 18 forecast to learn what will drive trends for Crude Oil

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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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