Experts Agree, Crude Oil Re-balance Not Seen Any Time Soon
$USO, $OIL
A growing number of analysts are no longer expecting the current Oil market imbalance to correct itself as fast as it thought to be the case up until a last week.
The sharp builds in US Crude inventories is eroding any Bullish expectations. After a 7.1-M bbl increase over the prior 2 weeks, the market was anticipating to see a more subdued build of 2.2-M bbl this time in the weekly Crude Oil stocks data from the US Energy Information Administration (EIA).
As it turned out, US Crude Oil inventories increased by a large 7.6-M bbl last week, a much bigger build than expected but lower than the 9.4-M bbl increase that was reported by the American Petroleum Institute (API) Tuesday evening. Consequently WTI Crude Oil initially extended its falls before recovering a bit.
The Crude Oil stocks build can be blamed on seasonal factors as refineries process less Oil because of maintenance work after the Summer driving season, the fact that inventories increased this sharply suggests output is growing more strongly than expected.
Also, with the rig counts showing consistent falls in recent weeks, Crude Oil production should continue to fall, and eventually the surplus should be reduced by a meaningful margin to cause prices to bounce, maybe.
The technical reversal signal seen at the end of August, the break below 42, which suggested Crude Oil bottomed, has not been fully invalidated yet.
This 5-day selloff was not what the Bulls expected to see following the latest breakout from a triangle consolidation pattern, the fact that WTI Crude Oil has managed to bounce off the backside of the triangle’s broken Resistance trend can be an encouraging sign for the Bulls.
So, it is possible that another Northside move could start from here.
But, even if WTI Crude Oil retraces a little further, the Bulls would still remain optimistic that the next big move would be to the Northside.
However, an eventual closing break below that pivotal 42 handle would be a Bearish outcome of the action, and if that happens and if Crude Oil goes down to the 35 – 30 bbl next, then 22-25 is not out of the big picture.
Crude Oil has fallen this year and US gasoline demand softened. WTI Crude Oil could fall to as low as 10 bbl as the Organization of Petroleum Exporting Countries (OPEC) engages in a “Price War” with rival producers, testing who will cut output 1st.
Iran is soon to release 53-M bbl to the market and will be producing up to 2.6-M BPD in 4 to 6 months., and now there is a 2.4-M bbl excess in the market going to storage. Iran with the world’s largest tanker fleet, is said to have up to 55-M bbls in tanker storage now.
Long term technical and fundamental outlook for both Brent and WTI Crude Oil is due South.
OPEC says it will cut production but is not doing that, and are going to see who can stand lower prices longest, since October of 2014 HeffX-LTN sees that Crude Oil is likely is headed for 20 – 22 bbl in the mid term.
Stay tuned…
HeffX-LTN
Paul Ebeling
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