Senior Market Strategist

Total Content 76

Articles 59

What's Next for Crude Oil?

By David Morrison  |  20/12/2017 14:42

”crudeoil”/
This article will focus on price action in the front month WTI contract rather than Brent. WTI tends to provide better technical signals than Brent – not always, but often enough to give a cleaner overall picture.

Price action so far

Having rallied off the sub-$28 multi-year low hit in early 2016, crude ran into a band of resistance from the end of that year to the beginning of March 2017. WTI was unable to break and hold above $54.50. It proceeded to sell off over the next few months until it hit an intra-day low just above $42 in mid-June. From here on in it staged a rally which took it up to $59 at the end of last month.

OPEC/non-OPEC output cut

Much of this move was on the back of the OPEC/non-OPEC producers’ output cut agreement. This kicked off at the beginning of 2017 when a group of producers (led by Saudi Arabia and Russia) decided to cut output by 1.8 million barrels per day (bpd). This failed to support prices early in the year (see “US shale” below). But investor opinion turned when it became apparent that compliance levels were high and that the cuts were having an impact on global inventories. Crude got a further boost in the run-up to last month’s OPEC meeting when the output cut agreement was extended from March to December 2018.

Russia unhappy

As mentioned earlier, high compliance from OPEC and non-OPEC producers helped reduce global inventories from record levels. This is something that investors will continue to keep a close eye on as we head into 2018. However, Russia has indicated that it wants to ditch the deal once inventories drop back towards the long-term average. This raises the possibility that the agreement could crumble before the official expiry at the end of next year. This could put pressure on crude prices as we get further into 2018 and approach the next OPEC meeting in June. This could prove to be an ideal forum for Russia to say that it won’t agree to anymore extensions.

US shale

But the parties subject to the OPEC/non-OPEC output cut agreement are not the only players in town. Technological advances over the last ten years have helped to make the US is the world’s third largest producer after Russia and Saudi Arabia. Thanks to shale, the US is considered to be the world’s new swing producer, with drillers ready to raise or cut production in line with supply and demand. Shale production is far more flexible than Saudi Arabia’s (the old swing producer) with US drillers able to respond to price moves relatively quickly. On top of this, the US took no part in the output cut agreement.

Estimating the break-even

For the first half of this year, the prospect of US shale companies producing millions of barrels of cheap oil helped keep a lid on crude, even as output cuts came in. There were industry forecasts saying that US production would top 10 million bpd by the end of 2017. However, that prediction proved to be overly optimistic and it’s still difficult to know where the industry’s break-even price is for crude. This will differ wildly depending on where the drilling takes place. But given the current market we can be fairly sure most is above the $40 per barrel estimated at the beginning of the year.

Speculative positioning
 
Earlier in the summer doubts surfaced over the ability of US shale producers to raise output quickly and cost-effectively.  This has been another factor in the recent increase in the price of crude. However, there’s evidence that production is picking up again with robust gains in September. If it picks up again in October which saw crude take another leg higher, then we could see traders trim back their long-side exposure. It’s worth noting that according to the latest Commitment of Traders (COT) report, speculative positioning in WTI hit a fresh record high last week. While excessive, there’s nothing to say that bullish positions can’t increase further. However, it does raise the prospect of a sudden reversal which could help to put a cap on prices, particularly should WTI close in on the $60 per barrel level.
 
Some technical levels

There was considerable excitement when both WTI and Brent surged above resistance from the beginning of the year, breaking above $54.50 and $57.50 respectively. Since early October prices have consolidated to a degree and this has led to a downturn in the standard MACD and RSI. However, the 21, 55 and 100-day exponential moving averages are all still aligned bullishly. As far as WTI is concerned, there’s some mild support around $56 while $54.50 remains significant. The current upside target is $60/62.50 – an area that acted as resistance in the summer of 2015.
 

Share

Author's Other Opinion & Analysis

  • Dollar spikes higher
    By David Morrison  |  12/01/2019 14:31

    EURUSD falls back below 1.1500

  • Another look at the EURUSD
    By David Morrison  |  19/04/2018 15:06

    Trump accuses China and Russia of “playing the currency devaluation game”.

  • S&P 500 update
    By David Morrison  |  18/04/2018 15:53

    The US stock market steadied last week

  • Weekly market wrap
    By David Morrison  |  14/04/2018 15:19

    The first quarter earnings season got underway last week

  • EURUSD update
    By David Morrison  |  12/04/2018 08:14

    Still range-bound near highs

  • Weekly market wrap
    By David Morrison  |  07/04/2018 15:29

    US payrolls disappoint

  • Non-Farm Payroll look-ahead
    By David Morrison  |  06/04/2018 13:48

    Tomorrow sees the latest update for arguably the most important, and potentially market-moving, global data release – US Non-Farm Payrolls.

  • S&P 500 update
    By David Morrison  |  05/04/2018 14:31

    S&P 500 breaks below 200-day moving average

  • Weekly market wrap
    By David Morrison  |  30/03/2018 13:38

    This Easter holiday couldn’t really come at a worse time

  • S&P 500 - update
    By David Morrison  |  28/03/2018 13:47

    The S&P since February's sell-off

  • Weekly look-ahead
    By David Morrison  |  24/03/2018 16:59

    Holiday-shortened week

  • NASDAQ leads sell-off
    By David Morrison  |  23/03/2018 15:53

    Markets lead lower by tech sell-off

  • Fed meeting in focus
    By David Morrison  |  22/03/2018 10:50

    Investors on edge ahead of Fed decision

  • Weekly Outlook
    By David Morrison  |  17/03/2018 15:41

    Fed meeting in focus

  • S&P 500 - the technical picture
    By David Morrison  |  15/03/2018 16:34

    This week has seen the US majors pull back from their best levels

  • Weekly look-ahead
    By David Morrison  |  10/03/2018 16:16

    The headline payroll number smashed above the high end of expectations

  • Non-Farm Payroll look-ahead
    By David Morrison  |  09/03/2018 14:30

    All eyes on wage growth

  • ECB and BOJ meetings in focus
    By David Morrison  |  08/03/2018 17:24

    Investors experienced a shock last month

  • Weekly Outlook
    By David Morrison  |  06/03/2018 10:15

    This is a big week for financial markets

  • Euro bounces, but political uncertainty remains
    By David Morrison  |  03/03/2018 11:01

    The euro rallied sharply overnight

  • Weekly look-ahead
    By David Morrison  |  24/02/2018 16:58

    US stock index futures were pushing higher ahead of Friday’s US open.

  • FOMC minutes and the German DAX
    By David Morrison  |  23/02/2018 14:33

    Investors were initially wrong-footed by minutes from a Federal Reserve meeting.

  • FOMC minutes in focus
    By David Morrison  |  22/02/2018 11:47

    All eyes are on the release of minutes from the Fed’s January FOMC meeting

  • Situation remains unresolved
    By David Morrison  |  21/02/2018 13:09

    The stock market correction may have further to go

  • Weekly Outlook
    By David Morrison  |  17/02/2018 16:02

    Global stock indices fought back last week

  • Out of the woods? Perhaps not
    By David Morrison  |  16/02/2018 13:37

    Yesterday brought the latest update on US inflation

  • Inflation and the S&P 500
    By David Morrison  |  13/02/2018 16:30

    This article will focus on the S&P 500

  • Weekly Outlook
    By David Morrison  |  10/02/2018 16:35

    Friday was a roller-coaster session to round off a tumultuous week.

  • What now?
    By David Morrison  |  09/02/2018 15:54

    The current sell-off in global equities has been a long time coming.

  • Traders focus on volatility
    By David Morrison  |  07/02/2018 16:55

    Yesterday the Dow posted its biggest ever one-day loss in points terms

  • Rising yields lift troubled dollar
    By David Morrison  |  06/02/2018 16:17

    The US dollar stages a modest recovery.

  • Weekly look-ahead
    By David Morrison  |  03/02/2018 16:12

    Equity sell-off resumes while dollar rallies

  • Time for a correction?
    By David Morrison  |  01/02/2018 16:22

    Equities retreat as yields push higher

  • Crude prices dip
    By David Morrison  |  30/01/2018 15:57

    Oil slides as dollar rallies

  • Weekly look-ahead
    By David Morrison  |  27/01/2018 15:16

    What's in store for key markets

  • Dollar hits fresh 3-year lows
    By David Morrison  |  25/01/2018 16:38

    US dollar plunges ahead of Trump's Davos speech

  • Wall Street hits fresh highs
    By David Morrison  |  24/01/2018 15:46

    The three-day US government shutdown ended on Monday

  • Market Round-up
    By David Morrison  |  23/01/2018 16:53

    Monday marked day three of the US government shutdown.

  • Weekly look-ahead
    By David Morrison  |  20/01/2018 16:30

    The last couple of weeks have seen a number of significant technical breakouts

  • S&P 500 – Weekly Chart
    By David Morrison  |  19/01/2018 15:24

    Putting price action into context

  • Crude pulls back from three-year highs
    By David Morrison  |  18/01/2018 16:32

    On Monday WTI and Brent hit their highest levels since early December 2014

  • Gold, the dollar, bond yields and inflation
    By David Morrison  |  17/01/2018 15:00

    But in line with conventional wisdom the dollar’s sell-off triggered a sharp rally in gold.

  • Weekly look-ahead
    By David Morrison  |  13/01/2018 16:50

    Earlier in the week the US majors had a slight wobble

  • Gold traders eyeing the dollar
    By David Morrison  |  12/01/2018 15:48

    This article considers the recent price action on gold

  • Chinese news rattles markets
    By David Morrison  |  11/01/2018 15:33

    Chinese officials recommend “slowing or halting”

  • Could stocks rally further?
    By David Morrison  |  09/01/2018 17:00

    Most European stock indices ended Monday’s session in positive territory, playing catch-up after Wall Street’s sharp rally last week.

  • Weekly look-ahead
    By David Morrison  |  06/01/2018 15:55

    We rounded off this week with the final Non-Farm Payroll report of 2017. Headline payrolls rose 148,000 which was well below the 190,000 increase expected.

  • Dow smashes through 25,000
    By David Morrison  |  05/01/2018 16:07

    Yesterday the US majors ended at fresh all-time highs and this helped to lift Asian Pacific indices overnight.

  • US indices hit fresh record highs
    By David Morrison  |  04/01/2018 16:08

    US stock indices made another strong upside move yesterday which took both the S&P 500 and NASDAQ Composite up to fresh record highs. The buying has continued throughout today’s session

  • Mixed start to New Year
    By David Morrison  |  03/01/2018 16:56

    The first trading day of 2018 brought a mixed session as far as global stock indices were concerned.

  • New Year round-up
    By David Morrison  |  30/12/2017 15:22

    As 2017 draws to a close, here’s a quick round-up of how a few key markets look going into next year.

  • Equities soar on US tax reform hopes
    By David Morrison  |  19/12/2017 16:10

    US and European stock indices soared on Monday as investors priced in an increasing probability that President Trump will deliver on his promise of tax reform before year-end.

  • Weekly Outlook
    By David Morrison  |  16/12/2017 14:26

    Here’s a brief heads-up for the week beginning 18th December

  • Central Bank monetary policy meetings
    By David Morrison  |  15/12/2017 15:48

    Here’s a quick rundown of the highlights from this week’s monetary policy meetings from the European Central Bank, Bank of England and US Federal Reserve

  • Look-ahead to the Federal Reserve meeting
    By David Morrison  |  14/12/2017 08:49

    Crucially, this week’s Fed meeting also brings an update to the FOMC’s Summary of Economic Projections.

  • Cboe launches Bitcoin futures
    By David Morrison  |  12/12/2017 16:26

    Listing Bitcoin futures on mainstream exchanges should ultimately help to boost the digital currency’s legitimacy and lead to more widespread acceptance.

  • Non-Farm Payroll look-ahead: 6 things you should know
    By David Morrison  |  09/12/2017 09:55

    So, here’s what to look for: the consensus expectation is for the headline Non-Farm Payrolls to rise 200,000 in November.

  • EURUSD – key events to consider
    By David Morrison  |  07/12/2017 17:07

    The dollar got a boost this week on the increased likelihood of an agreement on US tax reform being reached before the year-end.

Show More Articles
Back

Login to TheFXApp Account

Your TheFXApp account gives you access to the tools that we offer our customers including our
Technical Studies & Sentiment for your accounts.

Forgot Password?

Don't you have a TheFXApp account? With a few easy steps you can easily register to TheFXApp

Create a TheFXApp's Account

Your TheFXApp account gives you access to the tools that we offer our customers including our Technical Studies & Sentiment for your accounts.

register_ty

Thank you!

Welcome to TheFXApp family!

You have succesfully completed the registration.
We will send you an e-mail to give you some
instructions and our Terms and Conditions!
Our account representatives will be contacting you as
soon as possible. If you have any further questions
please do not hesitate to mail us via info@thefxapp.com