Crude Oil Insights

Trade Idea

  1. Initiate Sell in range of 95.60 to 95.90 for Target of 92.58 & 91.62 with Stop Loss of 97.10
  2. Buy Crude only if it gives a daily closing above 97.10 levels

Macro Outlook

Oil unwary of Geo political tensions - Since June 2014, we have been witnessing Geo-political tensions in the form of military conflict in Ukraine-Russia, Gaza-Israel, and militancy in Iraq.

Despite all this, Crude has been in downtrend as supplies of Crude from major exporting nations has been healthy

Falling US Crude Imports, ample supplies in US

The oil output in the US has increased by over 4 million barrels per day (bpd) between January 2011 and July this year. 

Check out few of the charts from tradingeconomics.com below -

  • US Current account deficit is at its lowest point since 2006, while US Crude oil production has almost doubled since 2008.
  • Imports of energy related products has been steadily on decline
  • It is clear enough that US has ample supplies of Crude which warrants decline in Crude imports and current account deficits

The net effect   - Fall in WTI Crude prices & Strong US Dollar

Gains in Crude post Aug 22 can be attributed to technical correction, while rise witnessed yesterday has been attributed to strong US GDP data.  Gross domestic product growth, propelled by the biggest gain in business investment in more than two years, climbed from an initial projection of 4 percent, the Commerce Department reported yesterday. Investment was up at an 8.1 percent annualized rate, the most since the first three months of 2012.

Meanwhile  forecasts from the International Energy Agency showed the U.S. will account for about 21 percent of global oil demand this year, almost double that of China, the second-largest consumer, in Paris show.

Hence crude prices have been on the rise. However strong Crude demand from US may not be enough to push prices significantly higher since crude production in US is rising every year.

Overall the supply situation looks comfortable enough to keep Crude prices under pressure even during times of geo political tensions. 

Crude prices shall rise sharply only if US gets involved in direct military conflict.

China slowdown, EU recession would keep demand side pressures low. Moreover anything related to China should affect Brent crude prices first.

Demand from Emerging markets may stay high although it remains to be seen how their economies perform once US begins monetary policy tightening. 

Technical Outlook 

Weekly Chart

Chart Source - Fxstreet.com.au

  • Wait and watch if prices end above 61.8% extension level of 94.64 today. 
  • The trend line resistance is currently stationed around 97.10

Daily Chart 

Chart Source - Fxstreet.com.au

4-Hourly Chart

Chart Source - Fxstreet.com.au

  • 4 Hour chart indicates prices have taken out 94.42 resistance levels which opens doors for 95.96 levels
  • RSI on 4-hour also indicates room for more upside
  • Daily RSI has also turned from oversold zone, although overall trend remains bearish

Conclusion

  1. Overall trend stays bearish
  2. Prices primarily supply driven, Demand pressures shall always remain being a necessity commodity. Supply remains ample
  3. Crude can be sold on rise for targets of 91.62 and below
  4. Caution - Prices can shoot up sharply if US gets involved in all out military conflict

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