Crude breaks four week winning streak ahead of oil inventories

Following four consecutive weeks of gains, crude prices have turned lower this week as momentum-chasing oil speculators banked profit after both Brent and WTI contracts hit three-year highs. At the time of this writing though oil prices had turned green on the day, but still remained red for the week. Prices had rallied on the back of noticeable de-stocking of crude inventories, owing in part to reduced crude production from the OPEC and Russia. But we reckon that the upside is now limited for oil prices and there is a possibility prices may have already formed a short-term peak. Most oil market analysts, ourselves included, think that US oil producers will ramp up production in the coming months. In fact, the US Energy Information Administration (EIA) reckons that US shale oil output will increase by a good 111,000 barrels per day next month to 10 million bpd and that it will rise to about 11 million bpd by the end of next year. This would but the US on par with Saudi Arabia and Russia's output. Indeed, the signs that oil production may rise are all there. At the end of last week, for example, Baker Hughes reported that the US oil rig count rose by another 10 to 752, putting them at the highest level in over six months. Perhaps the sell-off could be triggered on signs that the recent declines US oil inventories is over. Could the American Petroleum Institute (API) tonight or the EIA tomorrow produce such data? Last week, though, both agencies reported drawdowns in US crude stockpiles for the eighth consecutive time. Will it be different this week?

On Friday we reported HERE that Brent had formed a reversal-looking price candle when it probed liquidity above its previous swing high of $69.60 hit back in 2015. While Brent is still below this level, it hasn’t suffered further declines. So it remains to be seen if the London-based oil contract has indeed topped out. Meanwhile the WTI contract remains above its corresponding level of $62.55 for now although it too has shown some short-term weakness signs after breaking below $64.10/15 support. Once support, this level has offered some resistance for WTI today, although we haven’t seen a significant move away from this level yet. But should support at $63.40/5 area break down in the coming days then that could see price retreat back towards $62.55 and possibly lower. The technical outlook on WTI would turn bearish if it goes on to take out support at $61.35.

StoneX Financial Ltd (trading as “City Index”) is an execution-only service provider. This material, whether or not it states any opinions, is for general information purposes only and it does not take into account your personal circumstances or objectives. This material has been prepared using the thoughts and opinions of the author and these may change. However, City Index does not plan to provide further updates to any material once published and it is not under any obligation to keep this material up to date. This material is short term in nature and may only relate to facts and circumstances existing at a specific time or day. Nothing in this material is (or should be considered to be) financial, investment, legal, tax or other advice and no reliance should be placed on it.

No opinion given in this material constitutes a recommendation by City Index or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although City Index is not specifically prevented from dealing before providing this material, City Index does not seek to take advantage of the material prior to its dissemination. This material is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.

For further details see our full non-independent research disclaimer and quarterly summary.

CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 69% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money. CFD and Forex Trading are leveraged products and your capital is at risk. They may not be suitable for everyone. Please ensure you fully understand the risks involved by reading our full risk warning.

City Index is a trading name of StoneX Financial Ltd. Head and Registered Office: 1st Floor, Moor House, 120 London Wall, London, EC2Y 5ET. StoneX Financial Ltd is a company registered in England and Wales, number: 05616586. Authorised and regulated by the Financial Conduct Authority. FCA Register Number: 446717.

City Index is a trademark of StoneX Financial Ltd.

The information on this website is not targeted at the general public of any particular country. It is not intended for distribution to residents in any country where such distribution or use would contravene any local law or regulatory requirement.