Fundamental Forecast for : Bullish
FUNDAMENTAL CRUDE OIL PRICE TALKING POINTS:
The ONE Thing: Crude is looking at the second week of losses after four-year highs were traded at earlier this week and massive inventory gains in the US look to show demand may be waning alongside a miss in Chinese GDP data.
Does two make a trend? For the second week EIA US inventories showed a surprise build of +6.49mn vs +0.909mn expected. Oil bulls hoped that last week’s mega inventory build would retrace this week after API data reported a surprise draw of -2.13mn barrels on back of last week’s report which reported the biggest build in over a year, 10mn bpd.
Contango is back on the prompt and 2nd-month futures contract that may show a combination of surplus inventories and waning demand, which is being blamed in part of the oil’s turn lower.
Per BHI, U.S. total rig count rose 4 rigs to 1067 from 1063; US Oil rigs jumps 4 rigs to 873
The technical picture: WTI has pulled back within a bullish channel, and Momentum studies like MACD (5, 34, 5)are showing a pullback similar to previous trend resumptions. Traders should look for a break through the bottom of the channel (~$64/bbl) to see that the current bullish environment has terminated.
Crude has been on a bumpy ride since late May, but ultimately, it looks to be moving higher with fundamental tectonic plates potentially shifting. Traders are looking to conflicting forces that show short-term fear of further downside volatility while the possible forces remain for much more aggressive upside potential.
First, the concerns. Crude in the first two months (November 18 –December 18) is now showing a discount developing in the front-month contract compared to the second-month contract whereas in early July, the premium for the front-month contract was as high as $2.57/bbl. Just this week, we’ve seen a discount develop on the back of massive builds in US Crude Oil inventory to the tune of 6.49 mln barrels.
