NYMEX WTI Light Crude Future Market Analysis

In this project, I’ll incorporate macroeconomics analysis, special event analysis and technical analysis to provide a thoroughly weekly analysis for the oil price.

I’ll post weekly-updated chart along with my analysis, so you can check if my analysis is proved by checking next week’s chart 🙂

Looking back, I can see my first report is a little rusty, but at later reports I got better and better and did some good jobs analyzing the market.

Quick Introduction:

NYMEX WTI Light Sweet Crude Oil futures, the world’s most liquid and actively traded crude oil contract, is the most efficient way to trade today’s global oil markets and is widely reported as a proxy for the cost of imported crude oil.

  • Contract Size: 1000 barrels
  • Product Symbol: CL
  • Trading Hours: Sunday – Friday 5:00pm – 4:00pm CT with a 60-minute break each day at 4:00pm CT
  • Minimum Tick: $0.01 per barrel

overview

By 29 JUN 2018, CLQ8 is the most active contract, so it becomes the target of my analysis.

30 June 2018

I. Daily Price Chart

This is the daily price chart of CLQ8, along with its Volume and indicators like MA, MACD and BOLL.

1

II. Big Event and Fundamental Analysis

Last week the Price of CLQ8 increased drastically. It opened at 68.75 on Monday and closed at 74.15 on Friday while reached its new peak at 74.46 on Friday, the highest settle since November 2014.

Below are several big events and their influences happening last week, ordered by their importance and impact

  1. The most important one, on June 26, The U.S. threatened to slap sanctions on countries that don’t cut oil imports from Iran to “zero” by Nov. 4. President Donald Trump last month pulled the U.S. out of a 2015 international agreement to curb Iran’s nuclear program. Iran is the fifth-largest oil producer in the world and it pumps almost 5 percent of total output. Below is the biggest customers for Iran’s oil.
    2China is not likely to follow US’ lead since it is already on trade war with US, but Japan, India and South Korea have indicated they may stop importing Iranian crude if U.S. sanctions are imposed.
  2. In Libya, a power struggle between the government and rebels has left it unclear who will handle the country’s oil exports. The supply of up to 780,000 barrels of crude a day is at risk, according to analysts at Commerzbank.
  3. in Canada, ashutdown at an oil-upgrader facility in Canada this week at Syncrude has locked in 350,000 barrels per day (bpd) of crude, with repairs expected to last at least through July.
  4. The number of active oil rigs in the U.S. fell for a second week according to Baker Hughes, hitting the lowest level since mid-May, suggesting a pause in production growth.

Although, The U.S. government hopes other big producers in the OPEC and Russia will boost production to compensate for lost Iranian crude and they agreed to begin ramping up production by up to 1 million barrels a day starting next month, their efforts are not enough to overcome the supply disruptions all over the world.

On the demand side, the crude oil is expected to increase for the remaining year.

3

III. Technical Analysis

VOL: the volume show signs of decrease and VMA5 is crossing VMA10 from above. This means the opinion of market participants began to converge and the increase may finally comes to an end.

MA: MA5 has been providing support during the increase of the contract price and it along with MA10 also generates long-term support for the price. Currently, price is high above MA5, which can be seen as a sell signal until it returns to MA5.

MACD: MACD turned to positive on last Friday and continued to increase during the week, still showing no signs of divergence. The drastic increase can be seen as a overbought signal and indicates the faster MA will return to the slower MA.

BOLL: On Wednesday, the price broke the upper band. And the bands is going wider. the wider it goes, the more likely the chance of a decrease in volatility. It can be signs of exiting the trade

IV. My Opinion

Overall, I think the supply shortage shock has been absorbed by the market. In the future, the price is likely to fall or stay current level until it reaches a balance with the indicators, in the absence of future stimulation on fundamental level.

 

 

7 July 2018

Daily:4

Weekly:

5

I.Big Event and Fundamental Analysis

Last week price of CLQ18 closed with a slightly loss of -0.31%. Below are several events happened last week and my analysis.

 

  1. US-China trade war. Beginning midnight Washington time on Friday, the U.S. imposed new tariffs on $34 billion annual imports from China, to which Beijing responded by saying that it was imposing 25% tariffs on U.S. goods, including U.S. crude oil and oil products.  If that happens, “Chinese demand would then shift to other suppliers. Because the oil market is already in tight supply due to the numerous outages, this would drive international prices

 

  1. The Saudis have reported to OPEC that they had pumped 10.488 million bpd in June, up from 10.01 million bpd in May, well above its 10.06 million bpd quota – the highest Saudi production level since December 2016.

 

  1. South Korea, a major buyer of Iranian oil, will not lift any Iranian crude and condensate in July for the first time since August 2012, under the pressure of U.S.

 

  1. Inventories of U.S. crude rose by 1.245 million barrels for the week ended June 30, according to data from the Energy Information Administration (EIA). This news was generally thought of as bearish because traders had been pricing-in a 4.4 million barrel decline.

II.Technical Analysis

On daily chart, the price cross the MA5 from above on Thursday, while founding support on MA10. It bounced back 2 times near $72.5 both on Thursday and Friday. On weekly chart, a doji formed, indicating indecision of traders. The MA5 and MA10 are on 69.4 and 69.1 respectively, providing strong support at this level. I think the floor is at this level, around 69-70. With Independence Day in the middle of the week, the momentum has run out and the fundamental events are not surprising enough to generate a new trend. I believe there will be a pullback in the following week. There’s still some support on 72.5, if the market breaks that point, it will go all the way down to 69-70. However, In terms of the long-run uptrend, there are still no signs of reversal.

 

 

16 July 2018

Daily Chart:

6

 

Notice there is a crash on July 11. Zoom in a little bit to better see what happened

7

If you refer to my previous analysis, you will find my prediction is pretty close! That was a good shot! Now it’s time to move forward to the new week.

 

I.Big Event and Fundamental Analysis

To recap the week, after rallying in the early week, price plunged on Wednesday about 5% because OPEC member Libya reopened its ports in the east and U.S. Secretary of State Mike Pompeo said Washington would consider granting waivers to some of Iran’s crude buyers.

 

On Wednesday, the U.S. Energy Information Administration said that U.S. crude stockpiles fell by 12.6 million barrels during the week-ending July 6.  This unexpected drop in inventories provide some support after the price drop on Wednesday.

 

higher production from Saudi Arabia and Russia would limit spare capacity, making the market vulnerable to future supply shocks

 

Finally, the International Energy Agency (IEA) warned on Thursday that the higher production from Saudi Arabia and Russia would limit spare capacity, making the market vulnerable to future supply shocks

II.Technical Analysis

On daily chart, the price crossed MA5 & MA10, supported by MA20 for a while and crossed it finally. It made an attempt on MA60 at 69.2 and bounced back. On weekly chart, the price crossed MA5 from above, bounced by MA10 at 69.37. On the long-run, there is strong support around 63-67 and it either provide resistance or support for multiple points in 2018. In addition, an MACD ‘bullish’ crossover occurred on Thursday, further shows lack of confidence on market.

In my opinion, barring the new supply shock, price will keep looking for support, first on MA60 around 69, maybe bounced back a little bit but finally on MA120 around 67.  Alternative scenario is it bounced back at 69 and form new momentum and touch 75 again.

Finally, my strategy at the moment would be to short a put at 65, because I believe there will be a pullback but there is still long-run uptrend.

 

Week of 20 July 2018

8

 

I did  a good job again!

 

 

 


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