Will Shale production spoil OPEC’s best–laid plans? To see our thoughts, click here to access the DFX Oil forecast.

Highlights:

• Crude Oil Technical Strategy: price begins pushing off technical danger zone at $42/bbl.
• WTI price zone support from Nov. 15 blowout low at $42.26-$43.78/bbl
• IGCS Sentiment highlight: sentiment may be showing a bounce higher is underway

Crude Oil price rose for the fourth consecutive day on Tuesday that provides hope that we could see a long overdue mean–reversion move. The fourth consecutive daily rise in price would be the first in a month, and traders will look to inventory data on Wednesday from the EIA for validation that draws are persisting despite the rise in supply. On Friday, traders were met with the 23rd week of an increase in activated oil rigs in the US per Baker Hughes International, but the sellers did not control the day.

The top shale play, the Permian Basin in West Texas may fail to pull back the supply coming onto the market per the Chairman of Pioneer Natural Resources, Scott Sheffield. At the annual EIA conference in Washington, Sheffield said, ”[Pioneer] have the lowest-cost oil reserves in the world…The Permian won’t peak for 25 years plus.” Despite the lack of the typical ’summer surge’ in Oil, Sheffield said we would likely see a slowdown (read: less supply eventually), but the world will continue to need the Permian for years to come. Sheffield did not rule out the idea that an unsuccessful OPEC accord to global pullback supply may cause them to help OPEC out for the betterment of the entire market as a whole.

From an Intermarket Analysis perspective, the price of Crude Oil may have further support as the US Dollar took a dip against the EUR as ECB President; Mario Draghi shared a positive outlook and took EUR/USD above 1.13 for the first time this year. While a weaker USD could help, it is worth noting that Oil is likely retracing after working on the worst performing June since 1988.

Looking at the price chart below, the preference burden of proof remains on the Bulls. Recent CFTC data showed the lowest number of net-long institutional speculators in 10-months and the highest number of institutional shorts in 2017. A breakout will also be difficult as the desire to hedge is persistent and will bring sellers on any significant bounce. Therefore, resistance in focus remains at $45, with a daily close above $45 turning the immediate sentiment from bearish to neutral. A close below last week’s low of $42 would open up arguments that a test below $40 could be coming that would also bring out concerns of stress increasing in the high-yield energy credit market. All of these developments, should they occur will be covered in my Closing Bell webinar if you’d like updates.

JoinTylerin hisDaily Closing Bell webinars at 3 pm ETto discuss tradeable market developments.

Crude Oil price is bouncing after extended drop from strong price zone support

Chart Created by Tyler Yell, CMT

Crude Oil Sentiment: Rise in Bearish sentiment may be showing a bounce higher is underway

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 78.7% of traders are net-long with the ratio of traders long to short at 3.7 to 1. In fact, traders have remained net-long since Apr 19 when Oil – US Crude traded near 5266.2; theprice has moved 15.6% lower since then. The percentage of traders net-long is now its lowest since Jun 12 when it traded near 4642.8. The number of traders net-long is 0.8% lower than yesterday and 4.7% higher from last week, while the number of traders net-short is 4.4% higher than yesterday and 47.4% 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)

—

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

To receive Tyler’s analysis directly via email, please SIGN UP HERE

Contact and discuss markets with Tyler on Twitter: @ForexYell