CRUDE Oil Forecast And Technical Analysis Week of Jan 7-11

Fundamentals:

Let us start with EIA Inventories Data: U.S. crude oil inventories unexpectedly increased last week, the Energy Information Administration said in its weekly report on Friday.

Bullish sentiment has returned to oil markets in 2019, with Saudi Arabia cutting production while China and the U.S. look to end the trade war. After oil put in an incredible comeback on data that OPEC had significantly lowered production and the Saudis severely cut oil exports, slowing growth fears again thwarted the oil rally.

“Crude Positives”

*U.S. shale activity slowed in the fourth quarter.

**OPEC production fell in December. Bloomberg reported that OPEC production fell 530,000 barrels a day to 32.6 million a day last month. It’s the sharpest pullback since January 2017, the last cut that the market underestimated.

***U.S. shale production problems. The Wall Street Journal reported that U.S. shale companies have over-hyped the production potential from thousands of shale wells. “Two-thirds of projections made by the fracking companies between 2014 and 2017 in America’s four hottest drilling regions appear to have been overly optimistic, according to the analysis of some 16,000 wells operated by 29 of the biggest producers in oil basins in Texas and North Dakota,” the WSJ wrote. “Collectively, the companies that made projections are on track to pump nearly 10% less oil and gas than they forecast for those areas.” The WSJ calculated that the lower-than-expected production adds up to nearly one billion barrels of oil and gas over 30 years, worth more than $30 billion at current prices.

****Libya’s Sharara field sees more trouble. Libya’s largest oil field, the Sharara field, was hit with more bad news this week. “An inspection team reported the theft of key operational equipment, including transformers and cables from several wells. The incident will reduce Sharara’s output by approximately 8,500 barrels per day even after the main system restarts operations,” Libya’s National Oil Corp. said in a statement.

*****Offshore drilling plans delayed on the government shutdown.

******Oil tanks in Permian caught fire. A series of oil tanks caught fire near a Noble Energy (NYSE: NBL) well site in the Permian in the early hours on January 2. The well was shut down and no injuries were reported.

*******Strong U.S. employment data

********U.S.-China trade talks.

“Crude Negatives”

Slowdown in Global Economies: China’s manufacturing sector saw a contraction in December, with weakness attributed to the ongoing trade tensions with the U.S. The prospect for slower global economic growth would have a negative effect on oil prices due to the potential for softer petroleum demand, particularly from China which is the world’s largest oil importer.

EIA Inventories Data: The EIA data showed that crude oil inventories advanced by 0.007 million barrels in the week to Dec. 28. That was compared to forecasts for a stockpile draw of 3.09 million barrels, after a drop of 0.05 million barrels in the previous week. The EIA report also showed that gasoline inventories rose by 6.89 million barrels, compared to expectations for a build of 1.97 million barrels, while distillate stockpiles increased by 9.529 million barrels, compared to forecasts for a rise of just 1.63 million.

Technical Analysis:

We left the first week of the new year is behind us. “Low liquidity / high volatility” is over. We probably will see more stability, less volatility.

Weekly Chart: “Long Legged Doji” reversal candle is a good signal of the bullish reversal. 42.30 is an important level as midterm support. 45.32 $ Fibonacci 61.8 Retracement is the key level and bullish move will continue as long as the prices stay above it.


Daily Chart: Crude is testing the downtrend line. And price closed above the trendline. After the low liquidity/high volatility week, we may have a better view of the technical charts and levels. Short term key level is 47.66 where crude oil breaks the longterm downtrend line. If the prices close above 47.66 on Monday, this will be the confirmation of the breakout. Positive RSI divergence is another good news for the crude bulls.


We have closed our long position at 48.44 and entered a short trade. Our first target was 47.80 and price pulled back and met our target. However, we were anticipating a deeper correction. Even a negative EIA data could not push the prices deeper. Crude Oil ended the week at 48.24.

We are keeping our short position until we see an H4 closing above 48.44.

What can be the next move?

**Bullish Move will continue as long as the prices stay above 45.32.
**An H4 closing above 48.44 will carry the price 49.22.
**A bullish ascending triangle pattern has been completed on the smaller chart timeframes. Break above 49.22 will carry the price towards 50.70 – the target of the triangle formation-
**Break below 47.60 will send the prices towards 46.90 and 45.32.

Fundamentally, we do not see strong enough reasons to push the prices above 51.50.

We will update the forecast if we see any major change in the fundamentals.

Good Luck and Happy Trading Week