Summary:
- Latest Reuters poll of analysts sees 6th consecutive month of cut forecasts
- Last week Oil.WTI closed at highest level since the end of May
- Long term trend indicators turning more positive
It’s been a relatively quiet start to the week for the crude price with Oil.WTI trading marginally lower at the time of writing. Friday’s closing level was the highest since late May and the market has now recovered the majority of the declines seen since the OPEC meeting. With the market now probing the psychological level of $50 a barrel news that analysts are growing more bearish on price may come as something of a surprise.
Reuters conducts monthly surveys amongst analysts who are asked to provide their average price forecast for 2017 on both WTI (Oil.WTI on xStation) and Brent (Oil on xStation.) The year started with the majority in a nullish mood as the OPEC and non-OPEC cuts were implemented but their has been a gradual souring of sentiment amongst participants in the survey and after lowering the forecasts once more it is now 6th consecutive months that price projections have been subject to downwards amendments. The latest forecasts are for $54.51 for Brent (previously 57.37) and $51.88 for WTI (previously 55.2%.)
If we look at the longer term charts for Oil.WTI we can see that there is some suggestion the outlook is becoming more favourable to bulls. First off, the price has now moved firmly above an Ichimoku cloud on D1. The last two occasions price has attempted to break up through a cloud it has been met with a wave of selling and swiftly returned back underneath this trend identification technique.
Oil.WTI has broken above the Ichimoku cloud on D1. However it is not until the $52 handle is broken above that a series of lower highs will be negated.
In failing by the top of the cloud there has been a series of lower highs made (as well as lower lows). With the most recent swing high coming on the day of the last OPEC meeting this level now holds potentially even more significance and it’s not until the market recaptures the $52 handle that the series of lower peaks will be negated and any substantial rally can occur.
Furthermore the market is now back at its 200 day SMA once more and after spending the majority of last year above this trend identification tool the past few months price has been firmly below it. Three times last year dips back to the 200 day SMA provided nice buying opportunities, but after residing mainly below here of late will a rally into it now offer a selling opportunity?
The region around the 200 day SMA has acted as a turning point on several occasions over the past 12 months. Price is currently testing this indicator once more.
So in summary, Oil.WTI has been on a good run higher of late but the market is now at a potentially key level going forward. A break above the Ichimoku cloud is a clear positive for long positions but until the market can negate the series of lower highs by moving above $52 (and in doing so recapture the 200 day SMA) the outlook is mixed. The key releases for this market this week are the API and DOE inventory figures on Tuesday evening (around 9:30 pm BST) and Wednesday afternoon (15:30 BST) with the latter often being the most market-moving of the two.