We have downgraded our short-term outlook on crude oil to neutral, as both WTI and Brent crude oil run out of steam in the short-term. Our medium-term outlook remains bullish. Yesterday, US EIA data showed that crude stocks are rising (while average estimates expected crude stocks to continue falling), while refined product stocks including gasoline and distillates fell more than expected. Looking at WTI, prices fell on the news, falling from above $57.50 down to $56.70. Despite the fall, crude oil still looks fairly overbought to us and thus vulnerable to a pullback. In other news, the political purge in Saudi Arabia that started last weekend is now escalating. According to a news report from Reuters, over 1,700 bank accounts have been frozen (up from 1,200 reported earlier). The authorities are targeting individuals with links to the late Crown Prince and Defence Minister Prince Sultan bin Abdulaziz who died in 2011. The bank accounts of Prince Mohammed bin Nayef, who was ousted as Crown Prince by King Salman earlier this year, have also been targeted.
WTI is currently trading just above $56.80. Brent crude is currently above $63.40.
Looking at US crude oil stocks, the most recent EIA figures (November 8) showed rising crude oil stocks and falling gasoline inventories. Crude oil inventories were higher, despite estimates that expected falling stocks (+2.2m vs. -2.9m expected). Gasoline stocks were down (-3.3m vs. -2.0m expected) and distillate stocks (-3.4m vs. -1.4m expected) were also down. Looking at reactions in markets, crude oil prices fell following the EIA report.
As the short-term crude oil bull market runs out of steam, we are downgrading crude oil to neutral. 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, both Brent and WTI are looking overbought.