Crude oil ended the day up on Friday and is falling this morning. This weekend, we warned of the risks of big long positions in crude oil futures. While crude oil should keep rallying as demand growth continues to run ahead of supply, there is a short-term risk of a pullback as speculator positioning hits bullish extremes. Looking at news, Reuters is reporting that US regulators are raising concerns regarding weights on underground energy pipelines. Following the recent Keystone XL oil spill, the Pipeline and Hazardous Materials Safety Administration said that weights used to keep the pipeline in place may have caused the spill. If regulatory action against pipeline operators increases, it could lead to costly inspections for thousands of miles of underground pipelines. Our short and medium-term outlook on crude remains bullish.
WTI is currently trading just above $57.90. Brent crude is currently above $63.40.
Looking at US crude oil stocks, the most recent EIA figures (November 29) showed falling crude oil stocks and rising refined inventories. Crude oil inventories were lower than estimates (-3.4m vs. -3m expected). Gasoline stocks were up (+3.6m vs. +1.4m expected) while distillate stocks (2.7m vs. +0.7m expected) were also up. Looking at reactions in markets, crude oil prices rose following the EIA report.
As crude oil has been rallying since early October, we are upgrading the commodity to bullish. Note that both Brent and WTI are now trading within a normal range. This is based on technical indicators on the daily chart.
As crude oil rebounds on OPEC expectations, we are upgrading the commodity to bullish in the medium-term. Looking at various technical indicators on the weekly chart, both Brent and WTI are looking overbought.