Crude Oil, US Dollar, Wall Street, DOE, IGCS, Technical Analysis – Talking Points:
- Crude oil prices aimed lower even though there was a revival in risk appetite
- Higher US Dollar, unexpected increase in API inventories likely played role
- WTI may be at risk to a turn lower as retail traders boost upside exposure
Growth-linked crude oil prices were unable to capitalize on a rather rosy day for general market sentiment. In fact, WTI ended Tuesday 0.26% lower. Meanwhile on Wall Street, the Dow Jones, S&P 500 and Nasdaq Composite climbed 1.62%, 1.52% and 1.57% respectively as cyclical shares lead gains. Within the S&P 500, energy shares gained about 1.38% despite crude oil’s tamed session.
This followed a rather dismal Monday when risk aversion engulfed financial markets. Some dip buying might have been in play on Tuesday as Covid concerns, amid the highly contagious Delta variant, waxed and waned. Concerns about global growth cooled as Treasury rates climbed and the US Dollar benefitted. Strength in the Greenback may have also played a role in suppressing WTI.
Meanwhile, the American Petroleum Institute showed that the country saw an increase of 0.806 million barrels last week compared to an estimated drawdown of over 4 million. The unexpected increase in supply likely kept oil under pressure. Over the remaining 24 hours, WTI is eyeing official DOE inventory data, where a 3.9m barrel reduction is expected. Such an outcome may rekindle some upside pressure for energy prices.
Crude Oil Technical Analysis
Crude oil prices may be vulnerable to further losses after WTI broke under a rising trendline from early November. Still, the 100-day Simple Moving Average (SMA) held as key support, maintaining the dominant upside focus. Clearing the SMA would expose the 60.639 – 61.581 support zone followed by the March low at 57.278. If the SMA holds here, that may send WTI back towards revisiting early July peaks.
WTI Daily Chart
Crude Oil Sentiment Analysis
According to IG Client Sentiment (IGCS), about 60% of retail investors are net-long WTI crude oil. Downside exposure decreased by 11.21% and 13.87% over a daily and weekly basis respectively. We typically take a contrarian view to crowd sentiment, that fact traders are net-long hints prices may continue falling. This is further bolstered by recent shifts in sentiment.
*IGCS chart used from July 20th report
–— Written by Daniel Dubrovsky, Strategist for DailyFX.com
To contact Daniel, use the comments section below or @ddubrovskyFX on Twitter