WTI Crude Oil

Brent Crude Oil

Crude oil

Crude oil is an unrefined petroleum product made from hydrocarbons, and is the world's leading source of energy. The world's top five crude oil exporters include Saudi Arabia, Russia, Iraq, Canada, and the United Arab Emirates. Two-thirds of all oil contracts reference the Brent Blend, which originates from four different fields in the North Sea. West Texas Intermediate (WTI) refers to oil extracted in the US and sent via pipelines to Cushing, OK. WTI is primarily traded in the US. 

Short term outlook
Neutral
Medium term outlook
Bullish

Daily update

Crude oil prices are mostly flat today. WTI rose sharply yesterday while Brent prices traded sideways. When WTI makes gains relative to Brent, it is a strong indication that US conditions are more supportive for crude oil relative to international conditions. Given surging US shale output, this is a somewhat surprising occurrence. As the WTI-Brent spread falls, the incentive for US producers to export crude oil are falling. Looking at the fundamentals driving the commodity, recent data has been fairly bearish. US supply continues to surge while EIA data is showing that crude stockpiles are now rising. While Saudi Energy Minister Khalid al-Falih hinted that exiting OPEC supply cuts was not on the agenda for the cartel's upcoming meeting in June, Russian Energy Minister Alexander Novak suggested that the country could exit the pact in 5 months. Recent moves in the commodity are more likely the result of a weakening US dollar, which is currently trading near 3-year lows. Our short-term outlook is neutral, while our medium-term outlook on crude remains bullish.     

WTI is currently trading above $61.70. Brent crude is currently above $64.7.

Looking at US crude oil stocks, the most recent EIA figures (February 14) showed rising crude oil stocks and gasoline inventories. Crude oil inventories were lower than estimates (+1.8m vs. +3.0m expected). Gasoline stocks were up (+3.6m vs. +1.2 expected) while distillate stocks (-0.5m vs. -1.5m expected) were down. Looking at reactions in markets, crude oil prices were mixed following the EIA report.

Updated 

Crude oil Outlook

Short term outlook
Neutral

As crude oil runs out of steam, we are downgrading the commodity to neutral. Note that both WTI and Brent are trading within normal conditions. This is based on technical indicators on the daily chart. 

Medium term outlook
Bullish

As crude oil rebounds, we are upgrading the commodity to bullish in the medium-term. Looking at various technical indicators on the weekly chart, note that both WTI and Brent are trading within normal conditions. 

Updated 

Background

Supply and demand: Looking at the underlying fundamentals behind the crude oil market, demand growth continues to accelerate faster than supply growth. Thanks to both OPEC production limits and recent weather-related incidents, global crude oil supply has failed to keep up with demand. While many expected crude oil prices to remain permanently below $50 thanks to US shale, infrastructure bottlenecks and other resource constraints have kept shale supply at bay. Until supply overtakes demand, crude oil remains fundamentally supported.  

Sentiment: After crude oil prices bottomed in the summer of 2017, sentiment has hit bullish extremes quite a few times. Looking at technical indicators such as the Relative Strength Index, crude oil has looked overbought both on the daily and the weekly chart in the fourth quarter of 2017 and early 2018. Based on the Commitments of Traders report, speculators have maintained big long crude oil positions starting in November 2017. Under typical conditions, the one-sided nature of the market would cause crude oil to pull back. So far, crude oil has managed to continue rallying despite fairly extreme speculator optimism. 

Economic data: Forward-looking indicators continue to suggest strong global growth. As crude oil demand is correlated positively with GDP growth, the outlook for the commodity remains bullish. Growth is strongest in developed countries including the United States, the Eurozone and Japan. While Chinese crude oil imports hit all-time highs in 2017, the future outlook for Chinese demand is less optimistic thanks to an ongoing slowdown in Chinese lending. Slowing Chinese demand will ultimately weigh on prices once the slowdown accelerates. China replaced the United States as the world's top crude oil importer in 2017 according to customs data.   

Analysis

In 2013, when shale oil was in its relative infancy, Saudi oil minister Khalid al-Falih asked reporters to stop asking him questions about shale oil. “Leave us alone and leave all these issues. We had enough of shale oil and talks of shale. Please talk about anything else,” he snapped in response to a question about OPEC’s response to shale. Looking at 2017, accelerating US production failed to d…

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Tags: Crude oil

Looking at the latest Commitments of Traders report, bullish extremes continue in long crude oil, long British pound and long euro speculator net positions. While long crude oil and British pound positions have grown, long euro positions have fallen this week. The purpose of this report is to track how the consensus is positioned across various currencies and commodities. When net long positions…

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Tags: Crude oil

In this week’s COT report, most major currencies and commodities remain outside of bullish or bearish extremes. Instead, the only position that looks extreme is long crude oil. Over the past week, speculators have added to their long crude positions, and there are now 679,047 futures and options contracts long the commodity. Given the size of the long crude crowd, even a small pullback in crude o…

Published 
Tags: Crude oil