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 flat today - both WTI and Brent are currently trading sideways. Yesterday, the commodity weakened as American Petroleum Institute figures showed rising crude oil inventories (+1.1m barrels). Official data from the US EIA will be released later today. Crude oil also fell following news stories suggesting that French President Macron was pushing Trump for a renewed commitment to the Iran deal.
Turning to recent news, Bloomberg is reporting that Trump was unmoved by Macron's pitch to keep the existing Iran deal. In a meeting with Macron yesterday, Trump ridiculed the deal, calling it "insane", "ridiculous" and "terrible". Trump will decide whether or not to reinstate sanctions against Iran on May 12. As crude oil remains in a bullish trend, the commodity is likely to keep strengthening on Iranian supply concerns. While US supply concerns have caused short-term volatility, strong demand is absorbing new supply for now. Our short-term and medium-term outlook on crude remains bullish.
WTI is currently trading above $67.70. Brent crude is currently above $74.0.
Looking at US crude oil stocks, the most recent EIA figures (April 18) showed falling crude oil stocks and falling gasoline inventories. Crude oil inventories fell (-1.1m vs. -1.4m expected). Gasoline stocks were down (-3.0m vs. -0.3m expected) while distillate stocks (-3.0m vs. -0.4m expected) were also down. Looking at reactions in markets, crude oil prices strengthened following the EIA report.
As crude oil makes gains, we are now bullish on the commodity. Note that Brent is looking overbought on a daily chart. WTI is trading within normal conditions. This is based on technical indicators on the daily chart.
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.
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.
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…
Speculators have been adding to their long crude oil positions - but what does history have to say about this commodity? These positions are now at an extreme, with the trade becoming more crowded and US oil production increasing, but can it keep rallying?