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.
Crude oil prices are slightly higher today. Both WTI and Brent crude are currently making gains. Yesterday, WTI found buyers at $64.60/barrel. Note that trading volumes accompanying yesterday's rebound were lower than the previous three sessions (when prices fell). This is a sign that traders are not buying the rebound with conviction. Today's trading range for WTI remains $61.80 - $67.90.
Taking a closer look at commodity prices yesterday, the Thomson Reuters Core Commodity index rose as the broader commodities complex found support. Industrial commodity prices firmed, along with crude oil. Risk sentiment improved after China confirmed yesterday that vice-commerce minister Wang will lead a delegation to the US in late August in order to revive trade talks. In recent history, both China and the US have threatened to impose further tariffs, which would further weigh on global growth. News of the meeting boosted risk assets.
Oil prices have fallen sharply this week as data is starting to point to a slowdown in US demand. Asian demand is also showing signs of slowing. Trade disputes and a stronger US dollar are weighing on emerging market growth prospects, particularly in China. Our outlook for crude oil is bearish.
|August 10||Baker Hughes Oil Rig Count 10/AUG||869||859|
|August 14||API Crude Oil Stock Change 10/AUG||3.66M||-6M|
|August 15||EIA Crude Oil Stocks Change 10/AUG||6.805M||-1.351M|
|August 15||EIA Gasoline Stocks Change 10/AUG||-0.74M||2.9M|
|August 17||Baker Hughes Oil Rig Count 17/AUG||869|
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.
On August 10, we downgraded our outlook on WTI from neutral to bearish thanks to a significant deterioration of the trend. We determine trends for a number of major currencies and commodities based on price, trading volumes and changes in volatility. Following WTI’s latest top at $75.37/barrel, sell-offs in the commodity have been accompanied by accelerating trading volumes. This is a...
US Oil production may be accelerating, but crude oil remained a strong commodity throughout 2017. However, as supply growth is showing signs of catching up with demand growth - what does this mean for the crude oil forecast in 2018 and beyond?
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…