Crude Oil Prices Rally Ahead of US Inflation Data as Retail Traders Turn Bearish

Crude Oil, US CPI, Retail Trader Positioning, Technical Analysis – IGCS Commodities Update

• Crude oil prices are on a 4-day winning streak, up over 8%
• US eyeing replenishing SPR, eyes on inflation data ahead
• Retail traders are also turning increasingly bearish WTI

WTI crude oil prices gained for a fourth consecutive day, matching the longest winning streak since the beginning of April. Adding an extra 24 hours to this victory streak would mean the longest since early March. Since finding a recent bottom earlier this month, crude oil is up about around 8 percent.

The rally comes as the Biden administration announced it would plan to begin purchasing the commodity to replenish the nation’s Strategic Petroleum Reserves (SPR). The latter is sitting around a 40-year low in the aftermath of withdrawals that began when Russia invaded Ukraine more than a year ago.

Heading into the remaining 24 hours, all eyes will turn to April’s US CPI report. Headline inflation is seen unchanged at 5 percent y/y while the core gauge is expected to weaken slightly to 5.5% from 5.6% y/y. Further signs of sticky price pressures, coupled with last week’s healthy jobs report, could further cool near-term Federal Reserve rate cut bets.

That could dampen future demand prospects for crude oil. However, in recent days, retail traders have responded to oil’s rise by increasing their downside exposure. This can be seen by taking a look at IG Client Sentiment (IGCS).

Crude Oil Sentiment Outlook - Bullish

The IGCS gauge shows that about 76% of retail traders are net-long crude oil. Since the majority remains biased to the upside, this hints prices may continue falling down the road. But, downside exposure has increased by 3.44% and 37.98% compared to yesterday and last week, respectively. With that in mind, recent changes in positioning hint that the price trend may reverse higher despite overall positioning.

Crude Oil Daily Chart

On the daily chart, crude oil has extended a bounce off the wide 64.40 – 67.93 support zone. Near-term resistance seems to be the 38.2% Fibonacci retracement level at 75.60. Beyond that sits the 200-day Simple Moving Average (SMA). This could hold, maintaining the dominant downside focus.

Chart Created in Trading View

-- Written by Daniel Dubrovsky, Senior Strategist for DailyFX.com