Highlights:

• Crude Oil Technical Strategy: weekly decline could tilt momentum back to the Bears
• Baker Hughes shows shale drillers continue to add oil rigs resuming 2017 trend
• IGCS Sentiment highlight: Widening Bullish IGCS may favor further downside

Is that it? Traders were excited about the prospect of a strong bounce higher in Crude Oil that had the prospect of extending to $48 for WTI on thoughts of an unwind in bearish positions that could favor aggressive, albeit temporary buying. Now, it appears as though Crude Oil could make another attempt at the $42/bbl level that has acted as rising support after failing near $45 a barrel as investors remain concerned about rising US Supply data.

On Thursday (delayed due to the US holiday), the weekly EIA inventory report showed US crude stockpiles fell by 6.3m barrels, roughly 3x the expected draw. However, a concern we’ve often spoken of is that any rise in price will likely bring out the commercial hedgers that sell to lock in the price for future production, which will continue to limit aggressive upside potential. That may be what we’re seeing, and traders and investors alike continue to watch for signs out of Saudi Arabia, the de facto head of OPEC to continue upping the ante on their ‘Whatever it Takes’ promise to stabilize the oversupplied market.

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As you can see, the world is working with competing forces for a sustainable rebound in Crude Oil price. On the one hand, a positive development is an impressive rise in demand for gasoline, diesel, and other oil products, which US government data is showing to be at record highs. However, the bigger issues at hand appear to be the supply that continues to come in at higher levels thanks to US Shale, which may be here to stay for at least the next 25 years. Given the rise in demand, ‘Whatever it Takes’ from Saudi is expected to come in the form of a reduction in exports and OPEC production. In June, Saudi production rose ~90,000, which is not what the market wanted to see and more of the same could continue to put pressure on the price of Crude to new 2017 lows and toward $40/bbl.

Price action on July 5 showed a bearish key day, which signifies an aggressive resumption of a downtrend. A Bearish key day is confirmed with the day’s price high is above yesterday’s high with a close below yesterday’s low completely engulfing the prior day’s price action in a demanding manner. While the damage to the Bull’s confidence is likely lessened by the EIA inventory report, it’s worth noting we’re in the peak-demandseason, and a balancing in favor of an over-supplied market could put pressure on the recent $42.02 low. Other indicators like Ichimoku continue to favor the bearish picture playing out in the Crude market.

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Crude Oil fails to carry bounce off median line support watching re-attempt at rising median line

Chart Created by Tyler Yell, CMT

Crude Oil Sentiment: Widening Bullish Retail Sentiment May Favor Further Downside

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 74.2% of traders are net-long with the ratio of traders long to short at 2.88 to 1. In fact, traders have remained net-long since Apr 19 when Oil – US Crude traded near 5249.7; theprice has moved 15.6% lower since then. The number of traders net-long is 10.7% higher than yesterday and 10.8% lower from last week, while the number of traders net-short is 15.0% lower than yesterday and 17.0% lower 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. Traders are further net-long than yesterday and last week, and the combination of current sentiment and recent changes gives us a stronger Oil – US Crude-bearish contrarian trading bias. (Emphasis Mine)

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

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