Fundamental Forecast for USOIL: Neutral
- OPEC production cut extension gaining traction despite US Oil rig activation accelerating
- Technical Post: Crude Oil Price Forecast: Oil Has Best Week In 2017 On OPEC Hopes
- Crude Oil Prices Rebound From Yearly Lows
- Sentiment showing retail traders selling hard favoring ST upside per contrarian effect
What are the DailyFX analysts' expectations for Q2 2017 and key lessons they took away from 2016? Sign up for both on the DailyFX Trading Guides page.
The beginning of Q2 is setting up to be important for Oil traders to watch given what’s happening behind the price, which could determine if Crude Oil turns lower or much higher over Q2. One thing that is helpful to note is that counter to the equity market rallies across the world; Oil had a bad quarter. In looking at Energy stocks, the Oil & Gas sector was the worst performing sector for Q1 being down nearly 3%. In looking at the options markets; options traders are betting on theupside or a large reversion to the mean on the back of reports that OPEC is building consensus to extend the production cuts and encouraging US refinery demand data.
When comparing out of the money puts (which favor further downside), to out of the money calls (favoring further upside), Calls relative to Puts has reached a two-year high for energy stocks. Naturally, energy stocks are a highly correlated derivative of the energy market. While the upside in Oil may be limited relative to Energy Stocks, stocks in the Oil & Gas sector are said per Bloomberg to be trading at their cheapest level compared to the market since 2015.
The $64,000 question is whether or not Oil price and the Oil sector is leading or set to revert higher to stocks. The options market is betting on the latter as hope emerges that OPEC will extend the cut and give time for market demand to pull down the global stockpiles, which reached record levels in the US in Q1 due to US supplies.
Technical View: The price action turn-around of Crude Oil of ~5% off the 55-week moving average ($47.60/bbl) should keep traders focused on Oil at the start of Q2. We have recently looked at the 200-DMA because over the last year, recent price tests of the 200-DMA have been met with large buying volume that subsequently lifted prices to multi-month highs over the following months. However, stepping back, its work looking at the 55-WMA because it reduces some of the noise of day-to-day price action, and maintains technical significance.
If the 55-WMA holds price and we continue to move higher, which aligns with the developing sentiment picture, we could see a move to $52/55. If the upside does not develop and we get a breakdown below the last weeks low at $47/bbl, then we will focus on the chart support at the $44/40.5 zone, which is the 38.2-50% retracement of the February 2016 to January price range of $55.13-$26/bbl.
Weekly Chart Is Encouraging & Aligns With Emerging Sentiment Picture
Chart Created by: Tyler Yell, CMT
Next Week’s Data Points That May Affect Energy Markets:
The fundamental focal points for the energy market next week:
- Tuesday 4:30 PM ET: API weekly U.S. oil inventory report
- Wednesday 10:30 AM ET: EIA Petroleum Supply Report
- Fridays 1:00 PM ET: Baker-Hughes Rig Count at
- Friday 3:30 PM ET: Release of the CFTC weekly commitments of traders report on U.S. futures, options contracts
This weekend, Iraq energy forum starts in Baghdad that will host OPEC Secretary-General Mohammad Barkindo and Iraqi President Fuad Masum.
Oil - US Crude: Retail trader data shows 65.1% of traders are net-long with the ratio of traders long to short at 1.87 to 1. In fact, traders have remained net-long since Mar 01 when Oil - US Crude traded near 5433.1; the price has moved 7.2% lower since then. The number of traders net-long is 12.0% lower than yesterday and 9.5% lower from last week, while the number of traders net-short is 23.2% higher than yesterday and 7.3% higher from last week.
We typically take a contrarian view to crowd sentiment, and the fact traders are net-long suggests Oil - US Crude prices may continue to fall. Traders are less net-long than yesterday and compared with last week. Recent changes in sentiment warn that the current Oil - US Crude price trend may soon reverse higher despite the fact traders remain net-long. (Emphasis Mine)