Is The Crude Oil Short Trade Over Crowded?
Blackwell Global | Apr 21, 2017 06:31AM ET
Key Points:
- Price action fails to breach $50.00 handle and short move is stalled.
- 100 day MA and key support zone is limiting downside moves.
- Watch for a bounce towards the $51.90 target in the coming week.
The past few days have seen the price of crude oil (WTI) collapsing towards a major support zone around the $50.00 handle. The move was relatively obvious given the fact that price action failed to break through resistance at $53.74 leading to a sharp rejection and sentiment swing to the short side. Subsequently, traders largely piled in to short positions but with WTI prices having now reached the $50.00 level its worth asking if the trade is now over crowded.
The reality is that crude oil prices are reacting to not just technical factors, but also a range of shifting fundamentals with OPEC chief amongst them. Subsequently, given that oil prices remain strongly within an ascending channel, the downside was always likely to be limited especially when OPEC is countering falling prices with a potential extension to their present supply cuts. Therefore, the short side push was only ever likely to take the commodity to striking distance of the $50.00 handle.
Currently, the large institutional money (smart money) is winding back its short positions and looking for some gains in crude oil prices in the coming week. Subsequently, the net positioning is shifting long and the initial signals early on Friday is one of some upward pressure. This is especially prescient given that price action is currently sitting right on the 100 day MA, as well as key support zone.
In addition, rumours are currently swirling that the next OPEC meeting in May could bring about an extension of the current supply freeze and even potentially further cuts to world OPEC supply. Given that OPEC leaks like a barbed wire canoe it is no surprise that this information is permeating markets.
Subsequently, the production cut rhetoric is significantly limiting any further downside moves, from a fundamental perspective. Whether OPEC actually follows through with the purported cuts is another question but the risks are certainly slanted to the upside given many members needs for a higher oil price to balance their domestic books.
Ultimately, the short trade has now become overcrowded and any further decline below the $50.00 handle in the short term is unlikely. Additionally, the technical indicators are also suggesting another bullish wave higher given that price action rests at the junction of the 100 day MA and some key support. Subsequently, the most likely scenario for the week ahead is some sideways consolidation before a break back above the $51.00 handle and appreciation towards our short term target of $51.90 a barrel.
Get The News You Want
Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.