Crude Oil (WTI) Analysis
- Take a look at our new Q1 2023 Oil forecast
- Oil prices maintain the current bullish momentum after first real test of support
- Retail and institutional sentiment remain long as OPEC is set to remove supply
- The analysis in this article makes use of chart patterns and key support and resistance levels. For more information visit our comprehensive education library
Crude Oil in 2023: Lower OPEC Supply, China Reopening and the Global Economy
Oil prices started 2023 in much the same way they ended 2022 – oscillating around headlines of China’s reopening. While a more open Chinese economy is good news as it remains a large player in the oil market, but signs of economic fragility continue. The ailing property sector received a slight boost with the latest round of support measures being announced late last year however, more recent news of tech sector layoffs at Bytedance underscores the tough economic environment.
Major global economies are at the peak, or near the peak, of their respective rate hiking cycles where they are expected to remain until inflation shows conclusive evidence of lowering. As such, the tighter financial conditions are likely to weigh on consumer confidence, lending and overall infrastructure investment which tends to make use of greater quantities of oil in the good times.
While the state of China and the resilience of the global economy remains uncertain, OPEC + appears like it can be relied on to continue reducing its oil output on a monthly basis – which tends to provide support for oil prices. Thanks to soaring oil prices, inflation and U.S. President Joe Biden’s SPR sales, oil prices are roughly 35% lower than the 2022 peak.
Crude Oil Technical Analysis
WTI via the CL1! futures contract reveals that prices were previously supported at the latest test of support at $77 (a level coinciding with the 78.6% Fib retracement of the major 21/22 move). Prices are slightly lower in the European session with the next level of resistance up at the early December high around $83.
The target price range that the Biden administration set for SPR refills provided a massive zone of support and the launchpad for the latest bullish move. Another test of $77 could be on the cards this week ahead of the December Fed minutes which is due to be released tomorrow and the December NFP data due on Friday.
Crude Oil (CL1!) Daily Chart
Source: TradingView, prepared by Richard Snow
Long (WTI) Sentiment Persists
Speculative (hedge fund) longs have picked up consistently as of the latest CoT data and coincidently, so has retail sentiment.
Oil- US Crude:Retail trader data shows 63.17% of traders are net-long with the ratio of traders long to short at 1.72 to 1.
We typically take a contrarian view to crowd sentiment, and the fact traders are net-long suggestsOil- US Crude prices may continue to fall.
The number of traders net-long is 2.08% higher than yesterday and 7.94% lower from last week, while the number of traders net-short is 5.26% higher than yesterday and 7.53% higher from last week.
Yet traders are less net-long than yesterday and compared with last week. Recent changes in sentiment warn that the current Oil - US Crude price trend may soon reverse higher despite the fact traders remain net-long.
--- Written by Richard Snow for DailyFX.com
Contact and follow Richard on Twitter: @RichardSnowFX
