The oil rally has continued to gain steam as technical signals wage battle with geopolitical fundamentals to produce an eventful trading environment with multiple angles to interpret.
The outlook for shipments from oil producing Iran and Venezuela has deteriorated quickly. The domestic situation in Venezuela is cratering and the country is seemingly unable to produce oil at their previous scale. Meanwhile, the looming reality of new sanctions on Iran has heightened tensions in the Middle East.
For short term binary options traders, this means meaningful price action and multiple potential opportunities to stake out a position. Traders might be considering a position in either direction with crude, or using a Nadex spread or binary option to hedge positions in other markets.
Back in the United States, inventories are falling and crude oil exports are flowing at historic levels. The Energy Information Administration reported this week that US exports have surpassed 2.5 million barrels per day. This means the United States is in command of global oil markets, and can more than make up for falling production in other parts of the world.
End user demand is also up, with gasoline inventories dropping quickly as exports of that product reached 1 million barrels per day according to the EIA, and gasoline stockpiles are now ranging near a 5 year seasonal low.
Those numbers from the EIA would conventionally be thought of as constructive for price, however, this is a fluid and active market, and conventional history does not always apply. The EIA this week also cut their average price target for crude oil to $70 dollars a barrel, which is slightly lower than the level we see today. Their assumption is that $70 is a loftier price level that will put a lid on any growth in consumption.
We believe, the three most important factors to focus on currently are:
Supply – We believe supply will continue to aggressively escalate, even with limited production from Iran and Venezuela, as shale producers in the US will remain on a major push to produce, refine, and increasingly, export every drop of oil they can.
Demand – The picture is mixed as economic growth for Europe, Asia and emerging markets remains choppy. The dollar has been strengthening for a month now, and we do agree that $70 for WTI is a level where it becomes difficult for oil importers to expand purchases as the greenback moves higher. However, falling gasoline inventories in the near term is bullish, and might be enough to continue to support a rally through the early summer season.
Geopolitical risk – Headlines from around the world continue to dominate and they are generally bullish for price. OPEC is still limiting production, production is falling, and tensions in the Middle East are swelling.
Outlook For Crude Oil
Oil continues to outrun the Ichimoku cloud which paints a picture of gathering momentum. This is primarily attributable to the recent price ascension we have seen in crude. Ichimoku is showing tight support levels around $70, which potentially indicate any corrections, in the current environment, could be relatively short lived for now.
chart built by Jason Pfaff in TradingView
Next week could bring additional acceleration higher. Establishing near term resistance levels is difficult given the market is currently at multi year highs. We see a range between $71.0 and $73.0 in play, with risk to the upside of that range.
If we have another week of inventory declines, record exports, and escalating Middle East tensions, $74 could be in play for a level to open the following week.
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