“Oil prices have been reluctant to climb higher this week despite multiple bullish catalysts. It seems that traders are increasingly unwilling to risk their profits in an extremely unpredictable market.” (OILPRICE)

Crude Oil Demand

We don’t see any bullish news at all for crude oil the US and global economy faces a recession and that means lower oil prices longer term and in terms of supply, this can already be seen in the price of front-month crude oil futures.

Crude Oil Supply

Supply is ample as we can see on the chart below to do with supply as forward prices drop. "If curves could talk". The recent shift from a backwardation to an emerging contango in the oil market could be indicating that the economy isn't doing that well after all.” (MPAS)

Crude Oil Overbought

Crude oil remains severely overbought after the huge rally after COVID hit the world – despite the global economy being locked down we saw a huge rally in crude which we note on the chart below was driven by speculators buying crude oil as a proxy to stock market strength.

We also had a run on when the Ukraine-Russia conflict started but the supply and demand fundamentals hardly changed at all – if we look at the rally from COVID lows to all-time highs we saw a move from 20 to 130!

Speculators' Bullish and Impact on Volatility

We are back at 80.00 and the fair value for crude is probably about 40.00. Keep in mind, 90% of crude volatility is caused by speculation, and forecasters and speculators remain heavily bullish on crude…

Another point to keep in mind is crude is priced in USD’s and despite the big fall in the USD crude oil has failed to rally the gap on the chart is huge. A USD rally will continue to pressure crude oil lower. chart below shows the crude oil price v US Dollar Index DXY inverted.

Crude oil has further to fall and bounces in our view are selling opportunities.

Technical Analysis

Our view of the key levels of support and resistance to look out for and comments in terms of both daily and monthly charts below.