Can OPEC push crude oil prices higher? To see our thoughts, access the DFX Q2 Oil forecast here.
Talking Points:
- Crude Oil Technical Strategy: Bullish on a close above $50/bbl
- OPEC expected to extend production cuts in Vienna next week
- Oil price remains trapped in bearish falling channel, Ichimoku cloud
The price of WTI crude Oil does not seem to be bothered by the headlines signaling political turmoil in the US, but rather is favoring the outlook that OPEC is expected to extend the production curb another 9-months. On May 25, investors will likely get confirmation of whether or not the production cuts will be extended, but we have already heard the support of the idea from Russia and Saudi Arabia. While many feel that OPEC has been left little choice, but to cut production due to the increase in production from shale discounting their efforts, traders still seem content to bid for Oil, which has kept the price pushing ever higher towards the important $50/bbl level for WTI Crude. The question that will continue to remain, even if the 9-month extension is approved and compliance among the members remains impressive is whether or not Non-OPEC production (i.e., shale) will swamp the deal’s effectiveness and keep the market oversupplied.
While the fundamental story shows that we should be working ever-closer to a balanced market with OPEC increasing how long they will pull back production, the charts seem also seem to favor upside if the price can close on a daily basis above $50/bbl. Given the current news cycle and encouraging EIA inventory data out of the US, the market appears to be supported near $48/bbl. A break above $50 along with the developing sentiment picture below helps to paint a picture that we’ll soon see a move to the top of the falling bearish channel near $52/bbl.
If the price can break above the top of the bearish channel, we expect the US production to play less of a factor in headlines as traders start to focus once again on an approach toward $60/bbl. If crude does move higher, it’s worth keeping an eye on Oil-driven currencies like USD/CAD, USD/NOK, and USD/MXN.
Of course, OPEC is working to put the market in a place where demand outstrips supply. If they can do that, they’ll need a helping hand from the demand side, which will likely be dependent on a resumption of positive economic activity in the US China that has been absent of late.
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Crude Oil continues to stay offered below $47.11 as Ichimoku favors downside continuation
Chart Created by Tyler Yell, CMT
Oil – US Crude: As of May 8, retail trader data shows 68.0% of traders are net-long with the ratio of traders long to short at 2.13 to 1. In fact, traders have remained net-long since Apr 19 when Oil – US Crude traded near 5301.8; price has moved 7.3% lower since then. The number of traders net-long is 6.6% lower than yesterday and 23.0% lower from last week, while the number of traders net-short is 3.4% higher than yesterday and 11.2% 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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Shorter-Term US OIL Technical Levels: Thursday, May 18, 2017
For those interested in shorter-term levels of focus than the ones above, these levels signal important potential pivot levels over the next 48-hours.
Written by Tyler Yell, CMT, Currency Analyst Trading Instructor for DailyFX.com
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