Despite remaining in short-term overbought territory, crude oil continues to climb higher. Last Friday, the Baker Hughes rig count fell to 729, the biggest cut since May 2016. The rig count is a leading indicator for US oil supply. While today's rig count is still much higher relative to last year (when only 450 rigs were active), falling numbers suggest that US oil supply has yet to surge in response to crude oil prices. In political news, a political purge in Saudi Arabia over the weekend has been described as a "stunning political development". While there is no immediate impact for the crude oil market, political unrest in the Middle East has historically affected supply.
WTI is currently trading just above $56.15. Brent crude is currently above $62.70. Both WTI and Brent crude are 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 (November 1) showed falling crude oil stocks and gasoline inventories. Crude oil inventories fell, but were higher than expectations (-2.4m vs. -2.5m expected). Gasoline stocks were down (-4.0m vs. -1.6m expected) and distillate stocks (-0.3m vs. -2.1m expected) were also down. US crude inventories have been falling for the past few weeks. Looking at reactions in markets, crude oil prices fell following the EIA report.
After recent data showed falling US oil rigs and lower crude oil stocks, we are upgrading crude oil to bullish. Note that both Brent and WTI remain 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.