Crude oil prices are rebounding today as global risk appetite returns. Last Friday, the S&P 500 ended the day higher by 1.49%. Looking at Asian stock markets today, Hong Kong's Hang Seng index is also rebounding. The Nikkei 225 is closed as today is a public holiday in Japan. In general, crude oil tends to strengthen when risk appetite improves, and weakens during downturns. Following the recent sell-off in the commodity, we lowered our short-term outlook on crude oil to neutral recently. While fundamentals continue to support a longer-term rally, the stock market rout combined with excessive bullish sentiment has weighed on the commodity. Last Friday, crude prices fell further after the US oil rig count rose at its fastest pace in many years. The number of new oil rigs increased by 26, boosting the total count to 791. Our medium-term outlook on crude remains bullish.
WTI is currently trading above $59.80. Brent crude is currently above $63.40.
Looking at US crude oil stocks, the most recent EIA figures (February 7) showed rising crude oil stocks and gasoline inventories. Crude oil inventories were lower than estimates (+1.9m vs. +3.3m expected). Gasoline stocks were up (+3.4m vs. +1.1m expected) while distillate stocks (+3.9m vs. -1.2m expected) were also up. Looking at reactions in markets, crude oil prices fell following the EIA report.
As crude oil runs out of steam, we are downgrading the commodity to neutral. Note that both WTI and Brent are trading within normal conditions. This is based on technical indicators on the daily chart.
As crude oil rebounds, we are upgrading the commodity to bullish in the medium-term. Looking at various technical indicators on the weekly chart, note that both WTI and Brent are trading within normal conditions.