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The Outlook for Crude Oil Prices

Commodities / Crude Oil Apr 06, 2016 - 06:21 PM GMT

By: Donald_W_Dony

Commodities

Light crude oil prices (WTI) has remained in a downward trend since mid-2014. With its fresh new low in Q1, 2016 and price resistance now building at $42.40, the outlook remains negative.

The U.S. dollar's impact continues to play out against the commodity.
With the improving economic status of the U.S. coupled with a Fed agenda of gradual interest rate increases this year, the currency remains with a steady tailwind (Chart 1).


A rising US$ will only add to oil's struggle to advance.

Futures contracts are also echoing the same message.

The August and December contracts are suggesting WTI will stay in the low $40s.

To add to this, the EPA wrote, in its March 8, 2016 Outlook Report, that they expect Light crude oil to hover around $34.04 in 2016 and go to $40.09 in 2017.

On the positive side of the ledger, U.S. Crude oil stocks declined in March marking the first fall in seven straight weeks.

From a global equity perspective, the declining price of oil is having a clear negative impact on the upward movement of most world markets.

Since the rollover of oil prices starting in mid-2014, the Dow Jones Global Index has struggled to hold to a bullish trend (Chart 2).

Though the impact of depressed oil prices are having a larger impact on markets outside the U.S., the overall performance of WTI and global markets are clearly linked.

Bottom Line: The outlook for WTI, to year-end, remains less than buoyant.

With technical price resistance at about $42, positive tailwinds for the U.S. dollar and limited fundamental stimulus, we feel Light crude oil prices will likely remain under the $42 ceiling but stay above the low $30s throughout this year.

By Donald W. Dony, FCSI, MFTA
www.technicalspeculator.com

COPYRIGHT © 2016 Donald W. Dony
Donald W. Dony, FCSI, MFTA has been in the investment profession for over 20 years, first as a stock broker in the mid 1980's and then as the principal of D. W. Dony and Associates Inc., a financial consulting firm to present.  He is the editor and publisher of the Technical Speculator, a monthly international investment newsletter, which specializes in major world equity markets, currencies, bonds and interest rates as well as the precious metals markets.   

Donald is also an instructor for the Canadian Securities Institute (CSI). He is often called upon to design technical analysis training programs and to provide teaching to industry professionals on technical analysis at many of Canada's leading brokerage firms.  He is a respected specialist in the area of intermarket and cycle analysis and a frequent speaker at investment conferences.

Mr. Dony is a member of the Canadian Society of Technical Analysts (CSTA) and the International Federation of Technical Analysts (IFTA).

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