New Monthly Lows as Downtrend Prevails


Crude Oil Outlook:

  • Crude oil costs can’t appear to catch a bid, setting freshly month-to-month lows in immediately’s session.
  • The downtrend from the June and July swing highs stays in place, however assist could also be nearing round 85.41, the October 2021 excessive.
  • According to the IG Client Sentiment Index, crude oil costs have a combined bias within the near-term.

Growth & Supply Concerns

Crude oil costs are taking one other dive decrease immediately on the again of renewed issues about provide and demand. On the demand aspect, information that the People’s Bank of China minimize a key rate of interest for under the second time this 12 months stoked worries that the world’s second largest economic system is in worse form than beforehand believed. On the availability aspect, there are indicators of progress in the direction of a revitalized Iran nuclear deal, which might deliver Iranian oil again to the market.

The one-two punch of weaker Chinese demand plus elevated Iranian provide has helped drive crude oil costs to a recent August low, and their lowest stage for the reason that Russian invasion of Ukraine started in February. The technical image isn’t faring any higher, with the downtrend in place for the reason that June excessive remaining.

Oil Volatility, Oil Price Correlation More Negative

Crude oil costs have a relationship with volatility like most different asset lessons, particularly those who have actual financial makes use of – different power property, smooth and onerous metals, for instance. Similar to how bonds and shares don’t like elevated volatility – signaling larger uncertainty round money flows, dividends, coupon funds, and so forth. – crude oil tends to endure during times of upper volatility. As is commonly the case, the uptick in crude oil volatility has proved unfavorable for crude oil costs within the near-term.

OVX (Oil Volatility) Technical Analysis: Daily Price Chart (August 2021 to August 2022) (Chart 1)

Oil volatility (as measured by the Cboe’s gold volatility ETF, OVX, which tracks the 1-month implied volatility of oil as derived from the USO choice chain) was buying and selling at 50.33 on the time this report was written. The 5-day correlation between OVX and crude oil costs is -0.85 whereas the 20-day correlation is -0.20. One week in the past, on August 9, the 5-day correlation was -0.74 and the 20-day correlation was -0.20.

Crude Oil Price Technical Analysis: Daily Chart (August 2021 to August 2022) (Chart 2)

Crude Oil Price Forecast: New Monthly Lows as Downtrend Prevails

Crude oil costs made an earnest try at retaking their day by day 21-EMA (one-month transferring common) final week for the primary time since mid-June, solely to be rebuffed by the descending trendline from the mid-June and late-July swing highs. Momentum is more and more bearish, with crude oil costs beneath their day by day 5-, 8-, 13-, and 21-EMA envelope, which is in bearish sequential order. Daily MACD has simply issued a bearish crossover whereas beneath its sign line, whereas day by day Slow Stochastics are nearing a return to oversold territory. Support is nearing round 85.41, the place the October 2021 excessive was carved out. It stays the case, as famous on the finish of July, that “a move above the daily 21-EMA would…offer the greatest confidence that the sell-off has finished…until then, however, more downside remains a distinct possibility.”

Crude Oil Price Technical Analysis: Weekly Chart (March 2008 to August 2022) (Chart 3)

Crude Oil Price Forecast: New Monthly Lows as Downtrend Prevails

Momentum has weakened additional on the weekly timeframe. Crude oil costs are beneath their weekly 4-, 8-, and 13-EMAs, and the weekly EMA envelope is in bearish sequential order. Weekly MACD continues to say no and is nearing a drop beneath its sign line, whereas weekly Slow Stochastics at the moment are in oversold territory. A weekly shut beneath 85.41 would recommend an excellent deeper setback to the low 80s would develop into the bottom case situation.


Crude Oil Price Forecast: New Monthly Lows as Downtrend Prevails

Oil – US Crude: Retail dealer information reveals 71.90% of merchants are net-long with the ratio of merchants lengthy to quick at 2.56 to 1. The variety of merchants net-long is 20.88% decrease than yesterday and 1.95% decrease from final week, whereas the variety of merchants net-short is 12.68% greater than yesterday and 15.38% decrease from final week.

We usually take a contrarian view to crowd sentiment, and the very fact merchants are net-long suggests Oil – US Crude costs could proceed to fall.

Positioning is much less net-long than yesterday however extra net-long from final week. The mixture of present sentiment and up to date modifications offers us an additional combined Oil – US Crude buying and selling bias.

— Written by Christopher Vecchio, CFA, Senior Strategist

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