Best of the Week
Most Popular
1. Crude Oil Price Trend Forecast - Saudi's Want $100 for ARAMCO Stock IPO - Nadeem_Walayat
2.Gold Price Focusing on May Cycle Bottom - Jim_Curry
3.Silver, silver, and silver! There’s More Than Silver, People! - P_Radomski_CFA
4.Is the Malaysian Economy a Potemkin Village - Sam_Chee_Kong
5.Stock Market Study Shows Why You Shouldn’t “Sell in May and Go Away” - Troy_Bombardia
6.A Big Stock Market Shock is About to Start - Martin C
7.A Long Term Gold Very Unpopular View - Rambus_Chartology
8.Stock Market “Sell in May and go away” Study When Stocks Are Down YTD - Troy_Bombardia
9.Global Currency RESET Challenge: Ultimate Twist - Jim_Willie_CB
10.The Coming Silver Supply Crunch Is Worse Than You Know - Jeff Clark
Last 7 days
GDX Gold Mining Stock Fundamentals 2018 - 19th May 18
Semiconductor Stock Market Canaries: Chirp, Warble… Soon a Croak and Silence? - 19th May 18
Three Drivers of Gold Price - 18th May 18
Gold Market in First Tertile of 2018 - 18th May 18
What Happens Next When Small Cap (Russell) Leads the Stock Market - 17th May 18
Negative Signs for EUR/USD? AUD/USD - Battle - 17th May 18
DOW Jones and CRUDE Oil on a Cliff Edge, Waiting for a Nudge! - 17th May 18
Gold Price No More Subtleness – It’s Show Time! - 17th May 18
VIX Cycles Point to Stock Market Correction - 17th May 18
Trump Sounds End Times Armageddon Trumpet for Jerusalem, Israel Evangelical Prophecies - 16th May 18
Our Next Stock Market Dow Fibonacci Price Targets – Get Ready! - 16th May 18
The Coming Copper Crunch - 16th May 18
Stock Futures Are on a Sell Signal - 16th May 18
What to do When the IRS Comes for Your Property - 16th May 18
IS BITCOIN ANONYMOUS? - 16th May 18
Bitcoin Tide Might Have Turned - 15th May 18
UK Online Gambling Market Grows According to UKGC - 15th May 18
Stock Market Study: What Happens Next when Dow Goes Up 8 Days in a Row - 15th May 18
Fibonacci Price Ladder Points to Higher Stock Prices - 15th May 18
U.S. Dollar Rally Is Doomed - 14th May 18
Gloomy Scenarios for the Fed That Should Boost Precious Metals - 14th May 18
US Dollar One Reversal Too Many - 14th May 18
SPX futures are higher, but so is VIX - 14th May 18
Precious Metals and Miners NUGT – The Sleeping Giant Trade - 14th May 18
Is This The Netflix Of Cannabis? - 14th May 18
US Quest for Iran Regime Change: Will EU Sustain the Nuclear Deal - 14th May 18
Stocks Bears Last Stand - 14th May 18
Stocks Bear Markets Don’t Start when Real Interest Rates are this Low - 13th May 18
Stocks and Bonds Still Only 1 of 3 Macro Amigos to Destination - 13th May 18
Silver Forecast 2018 and Beyond, Investing for the $35+ Price Spike! - 13th May 18
Study: Breadth is Leading the Stock Market Higher. A Bullish Sign - 12th May 18
Ways on How to Get An LLC - 12th May 18
Kanye Is Right: Slavery Is A Choice And We're All Slaves Today - 12th May 18
Trump’s Iran-Decision Did-not and Won’t Affect Oil Prices - 12th May 18

Market Oracle FREE Newsletter

Trading Lessons

Oil markets turn bullish with shift to backwardation

Commodities / Crude Oil Nov 10, 2017 - 04:54 PM GMT

By: ElliottWave-Forecast

Commodities

This week both Brent Crude and WTI (Light Sweet Crude Oil) made a new price high in more than 2 years with Brent Crude rising to $64 per barrel and WTI to $57 per barrel. These price gains come before the OPEC’s meeting later this month on Nov 30. In the past two years, OPEC has imposed production cuts in its member countries in order to remove excess inventory and halt the price drop. In their last meeting on May, the cartel agreed to extend 1.8 million barrel a day cuts into the first quarter of 2018.


Recently, OPEC officials have given a signal that they will extend the production cuts beyond March 2018 at their next meeting in Vienna later this month. More importantly, this extension will occur at a time when the oil market has already tightened. The OPEC’s attempt to reduce the inventories appears to be bearing fruit. The chart below shows US crude and product inventories fall by 93.8 million barrels since the start of the year.

One of the reasons for this success is OPEC members’ compliance to the agreed upon production cuts from last year. In October, the compliance reaches 104% as the chart below shows

Further evidence that oil market is tightening could be found in oil futures market. Both Brent and WTI are now in the state of backwardation. This is a situation where the current price of oil for immediate shipment is higher than the price for future delivery. It signals that the market is tightening and discourage traders from stockpiling barrels. Conversely, contango is when the futures price of oil is higher than the current spot price. Brent has been in backwardation earlier this year, while WTI just recently moved to backwardation as the chart below shows:

This shift to backwardation from contango have important implication. First of all, it suggests that OPEC’s production quotas in the past two years have been successful. Secondly, the shape of the oil curve is an important predictor of future returns. For example, subsequent four and 12 week returns for long oil future position in backwardated market have averaged 1.3% and 2.9%, respectively. In comparison, the same periods see a return of -1.7% and -3.8% on average during contango markets.

If OPEC can extend the production cuts through the remainder of 2018 in their next meeting, the bullish momentum in Oil could perhaps continue into 2018. With the market already tightening, an extension in the production quotas could further reduce any remaining excess supply and support oil spot price.

WTI (CL #F) Oil Long Term Chart

The Long Term chart of Oil shows a 5 swing bullish sequence from Feb 2016 low, favoring more upside. Please note a 5 swing sequence is different than 5 waves impulse. Oil is currently favored to extend higher in 7 swing towards $67.4 – $73.4 target. The length of time from Feb 2016 low (0) to Jan 2017 high (3) is 47 weeks or almost 11 months. If we assume Oil will take the same amount of time from June 2017 low (4), then adding 47 weeks will give us May 2018 as an estimated time for the $67.4 – $73.4 target.

If you enjoy this article, check our work and join Free 14 days Trial to see Elliott Wave Forecast in 78 instrument, as well as getting access to Live Trading Room, Live Session, and more

By Ayoub Ben Rejeb

https://elliottwave-forecast.com

ElliottWave-Forecast has built its reputation on accurate technical analysis and a winning attitude. By successfully incorporating the Elliott Wave Theory with Market Correlation, Cycles, Proprietary Pivot System, we provide precise forecasts with up-to-date analysis for 52 instruments including Forex majors & crosses, Commodities and a number of Equity Indices from around the World. Our clients also have immediate access to our proprietary Actionable Trade Setups, Market Overview, 1 Hour, 4 Hour, Daily & Weekly Wave Counts. Weekend Webinar, Live Screen Sharing Sessions, Daily Technical Videos, Elliott Wave Setup .

Copyright © 2017 ElliottWave-Forecast - All Rights Reserved Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


© 2005-2018 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules