After hovering above overbought conditions since early November, crude prices fell significantly yesterday. Both WTI and Brent no longer look overbought on a daily chart. Yesterday, the International Energy Agency released its monthly Oil Market Report (data not yet publicly available). In the report, the IEA predicted that demand would continue to grow at historical growth rates while US supply will grow sharply in the near future. In a recent commentary on the dynamics of the crude oil market, we explained how rising US supply has been the key determinant of crude oil prices since 2014. Given that US supply is set to rise sharply this year, the ongoing rally is likely to end in 2018. We downgraded our short-term outlook on crude oil to bearish earlier today.
WTI is currently trading just above $55.10. Brent crude is currently above $61.50.
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.
After falling sharply from overbought conditions, we are downgrading crude oil to bearish. Note that both Brent and WTI are now trading within a normal range. This is based on technical indicators on the daily chart.
After falling from overbought conditions, we are downgrading crude oil to neutral in the medium-term. Looking at various technical indicators on the weekly chart, both Brent and WTI are looking overbought.