After a strong week, crude oil prices are currently taking a breather. Last week, prices rose thanks to rising inflation expectations following a crucial House of Representatives vote that paves the way for tax reforms. Crude was also supported by strong Q3 GDP numbers, which re-affirms the outlook for good US demand. In an earlier commentary, we explained how rising inflation expectations can help drive crude oil prices higher. Beyond economic figures, crude prices have been supported lately by hopes for OPEC supply cuts. Reuters is reporting that an extension beyond March 2018 is likely thanks to support from Russia and Saudi Arabia. OPEC will decide the fate of future production cuts at its next meeting on November 30.
WTI is currently trading just above $54.0. Brent crude is currently above $60.70. Both WTI and Brent crude are now looking overbought in the short-term. While this does not suggest an imminent pullback, it does suggest caution going forward.
Looking at US crude oil stocks, the most recent EIA figures (October 25) showed falling crude oil stocks and rising gasoline inventories. While crude oil inventories unexpectedly rose (+0.86m vs. -2.49m expected), gasoline stocks (5.46m vs. -1m expected) and distillate stocks (-5.2m vs. -0.5m expected) were down sharply . US crude inventories have been falling for the past few weeks. Looking at reactions in markets, crude oil prices were steady following the EIA report.
After rising sharply following good US Q3 GDP data and the higher likelihood of tax reforms, we are upgrading crude oil to bullish. The caveat is that both Brent and WTI are in overbought conditions today. This is based on technical indicators on the daily chart.
Thanks to ongoing crude oil strength, we are upgrading the commodity to bullish in the medium-term. Prices are rising as crude stocks continue to fall around the world, despite rising US exports that are driving concerns regarding future supply. Looking at various technical indicators on the weekly chart, Brent crude is looking overbought while WTI is trading within normal conditions.