Crude oil could be heading lower in coming months
Fawad Razaqzada January 31, 2018 1:43 PM
Although a touch higher today, crude oil prices have given back a good chunk of their recent sharp gains and both Brent and WTI are trading lower three days into the week. Both oil contracts are going to close the month of January higher, however, barring an unexpectedly sharp drop in the next few hours. There is a good chance crude prices could head lower at the start of February. Oil production in the US, which has already been on the rise, could increase further in the coming months. Thanks to higher oil prices, it is becoming profitable for shale producers to ramp up output. The sharp increase in drilling activity certainly points that way. According to Baker Hughes, the oil rig count rose by 12 last week, which was the sharpest increase in months. At a good 759, the oil rig count has now reached its highest level since September. As oil production is likely to increase in the US, crude inventories may rise again. Last week saw stocks of US crude oil rise by a good 6.8 million barrels, according to the Energy Information Administration (EIA). Analysts were expecting a much smaller rise. This however did not have any immediate negative impact on oil prices, because the EIA’s report also showed that stocks of oil products – gasoline and distillates – both fell sharply. If oil production continues to increase in the US as we expect that it might then the OPEC looks set to lose further ground in terms of market share. This may increase the pressure on the cartel to exit their production agreement with Russia earlier than expected. Thus, oil prices could come under pressure again. But if oil prices have any chance of remaining elevated, the growth in demand for oil needs to outpace that of supply. This is unlikely in our view. Meanwhile, WTI’s inability to hold above the psychologically-important level of $65.00 has potentially created a break in market structure. This level may now turn into resistance upon a re-test. Support at $63.75 is the main line of defence for the bulls now. But if this breaks and prices subsequently fall below the most recent low at $62.87 then there is a possibility for a sharp sell-off as the bulls rush for the exits. The next support comes in at $61.90.
Source: eSignal and FOREX.com. Please note, this product is not available to US clients
Disclaimer: The information on this web site 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. The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase or sale of any currency or CFD contract. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient. Any references to historical price movements or levels is informational based on our analysis and we do not represent or warranty that any such movements or levels are likely to reoccur in the future. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness, nor does author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions.
Futures, Options on Futures, Foreign Exchange and other leveraged products involves significant risk of loss and is not suitable for all investors. Losses can exceed your deposits. Increasing leverage increases risk. Spot Gold and Silver contracts are not subject to regulation under the U.S. Commodity Exchange Act. Contracts for Difference (CFDs) are not available for US residents. Before deciding to trade forex and commodity futures, you should carefully consider your financial objectives, level of experience and risk appetite. Any opinions, news, research, analyses, prices or other information contained herein is intended as general information about the subject matter covered and is provided with the understanding that we do not provide any investment, legal, or tax advice. You should consult with appropriate counsel or other advisors on all investment, legal, or tax matters. References to Forex.com or GAIN Capital refer to GAIN Capital Holdings Inc. and its subsidiaries. Please read Characteristics and Risks of Standardized Options.