Highlights:

• Crude Oil Technical Strategy: Crude Oil close above 48.20 opens the door for a Bullish Breakout
• Seasonal favor could be to blame for 16% lift in Crude Oil since mid-June
• Next technical Bullish trigger set at lower high from May at $51.97
• IGCS Sentiment highlight: Sharp rise in short positions provides contrarian signal to look for upside

Like a snowball rolling downhill, the Crude Oil market is beginning to gain valid arguments for a Bullish breakout. Recently, we’ve focused on the export (as opposed to production) curbs that have been agreed to in St. Petersburg by Saudi Arabia and the UAE. On Wednesday, we saw Oil climb still further on tangible proof that the supply glut is shrinking through a drop in crude, gasoline, and distillate inventories with overall petroleum inventories in the US sitting at their lowest levels since early 2016 per Bloomberg.

One should note the seasonal tendency for energy markets to favor upside breaks in the summer. This tendency was made apparent from the one-week average gasoline consumption rising 2.4% toward the record high set in late May.

The headline EIA print showed a decline of 7.2m barrels last week in US crude stockpiles, which was nearly double the expected decline. Naturally, this market remains demand heavy, which is playing well this time of year, but the DOE data showing a running 4-week average of total petroleum products supplied high 21.2m barrels per day, which was the highest supply level seen since early 2008. You could argue that given the draw in stockpiles, that is a rather bullish development in showing that demand is hitting record highs too, and I would favor that argument as well, but demand will need to keep pace with supply if this recovery in price is to have legs.

We’re beginning to see green shoots of hope in the Oil market,click here to see the opportunities we’re watching in Oil.

The price of oil is trading at 2-month highs after the EIA data, and the sharp nature of the rises makes way for an argument that the path of least resistance could be higher from here. The price support on the chart to watch will be this week’s low at $45.66/bbl. Given the shallow pullbacks and sharp price gains, we could see Oil retrace much of the 2017 decline seen.

On the chart below, the focus will be on whether the price can break out and above of the red falling channel that has contained price. A weekly close above the channel would then turn the focus to the May high of ~$52/bbl. A break above $52 would open a dialogue that a low has been set as long as $45.66 holds.

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After an encouraging EIA report, Oil turns focus to trading outside of the bearish channel

Chart Created by Tyler Yell, CMT

Crude Oil Sentiment: Sharp rise in short positions provides contrarian signal to look for upside

The sentiment highlight section is designed to help you see how DailyFX utilizes the insights derived from IG Client Sentiment, and how client positioning can lead to trade ideas. If you have any questions on this indicator, you are welcome to reach out to the author of this article with questions at tyell@dailyfx.com.

Oil – US Crude: Retail trader data shows 50.1% of traders are net-long with the ratio of traders long to short at 1.0 to 1. The number of traders net-long is 20.4% lower than yesterday and 23.7% lower from last week, while the number of traders net-short is 29.5% higher than yesterday and 23.5% higher from last week.

We typically take a contrarian view to crowd sentiment, and the fact traders are net-long suggests Oil – US Crude prices may continue to fall. 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. (Emphasis mine)

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Written by Tyler Yell, CMT, Currency Analyst Trading Instructor for DailyFX.com

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