In terms if crude oil in our last couple of posts we have been looking for crude oil to move lower and its moved down but we expect far more downside our view of the the fundamentals, technicals and sentiment below…
Fundamentals – the Reflation Trade Ends and Crude Oil Going Down
Crude oil rallied hard after the big sell-off on COVID last year but after basing ouT at 20.00, it moved up to the 77.00 level more than tripling in price. This price rise was against a global backdrop of ample supply and low demand so why did it rally so much? The move was purely speculation as traders bet on a strong economic recovery from COVID and bought crude oil as a risk proxy trade.
The news is full of stories about the positive outlook for crude oil but this is not supported by the supply and demand facts which we can see on the charts below. The Crude oil bull market has run out of steam on the upside and we would expect crude to weaken further going forward. The chart below shows there is low speculative interest in longs and this points to lower prices.
Supply is ample to meet demand anyway but global supply is increasing which will depress prices further:
In terms of demand and crude by-products, we are in a period which normally is peak demand for unleaded gas but demand is low. Also if we look at jet fuel demand is also depressed on the charts below:
USD To Go Up Crude Oil to Go Down
We view the supply and demand backdrop as bearish and another bearish factor is a stronger USD. The USD has firmed up since June and we expect a far higher USD which is bearish for crude oil.
Technical Analysis
The monthly chart shows the huge rise in crude oil and our downside targets which are a move down to 60.00 with a possible overshoot to 40.00.
On the daily chart, we can see after making a double top we have had three rallies to the upside with each rally smaller than the previous one which we view as bearish – crude oil in our view is a good risk to reward sell for long term trend followers.
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