Crude oil bears were 'caught short' at the lows, bulls now eyeing $80

WTI crude oil market positioning – COT report

The Commitment of Traders (COT) report can be particularly useful for identifying sentiment extremes, although, as it is weekly data, patience is a must. Since we aren't currently seeing a sentiment extreme in crude oil exposure, the data is vulnerable to overinterpretation.

With that said, the latest COT data suggests some bears have been caught short at the cycle lows. Last week, managed funds increased gross-short exposure at the fastest weekly pace in six weeks while also trimming longs. Yet, as WTI has also been moving lower over the past nine weeks with a high-to-low move of -17.3%, it suggests the move was perhaps overextended to the downside.

We're over halfway through this week and now on track to form a bullish engulfing week, so we can assume some short covering has taken place.

The question now is whether bulls have a strong enough case to take crude oil prices higher. If the US economy is strong enough to warrant the Fed retaining high rates and "driving" season is underway, demand for fuel could rise in the near term. Yet, the US dollar needs to figure out if it will focus on softer US inflation or a more hawkish-than-liked Fed. OPEC is supporting prices to a degree.

But perhaps we can see all we need to on the weekly chart. WTI crude oil is oscillating in a sideways range, and we may have seen a swing low that favours higher prices for a few weeks.

WTI crude oil technical analysis (daily chart):

Oil prices have risen nearly 10% from the June low, and a small bearish shooting star candle formed on Wednesday alongside the 2-day RSI reaching overbought territory. All of which suggests the upward move could be fatigued. It may not pinpoint the exact top, but bulls may want to err on the side of caution with $80 just overhead, as the reward-to-risk ratio may not be favourable.

However, strong positive delta volume (bids - offers) accompanied the strong bullish candle on Monday, so for now, I suspect any retracement lower could hold above the $75 area. Such a retracement could appeal to bulls looking to reload with a more attractive reward-to-risk ratio.

For now, prices are hugging the 200-dayt average, but a break of yesterday’s low will take prices back beneath it.

WTI crude oil technical analysis (4-hour chart):

The trend is clearly bullish on the 4-hour chart, although again I note the plethora of resistance overhead. With prices stabilizing around $78, I see the potential for another pop higher. Yet, the bias is to fade into moves up towards or around $80 with a stop-loss above $80.70 / $81 in anticipation of a retracement down towards $75.50.

If the anticipated retracement lower occurs, the bias then switches to seeking bullish setups for a potential break above $80.

-- Written by Matt Simpson

Follow Matt on Twitter @cLeverEdge

How to trade with City Index

You can trade with City Index by following these four easy steps:

Open an account, or log in if you’re already a customer

• Open an account in the UK
• Open an account in Australia
• Open an account in Singapore
Search for the market you want to trade in our award-winning platform
Choose your position and size, and your stop and limit levels
Place the trade

This report is intended for general circulation only. It should not be construed as a recommendation, or an offer (or solicitation of an offer) to buy or sell any financial products. The information provided does not take into account your specific investment objectives, financial situation or particular needs. Before you act on any recommendation that may be contained in this report, independent advice ought to be sought from a financial adviser regarding the suitability of the investment product, taking into account your specific investment objectives, financial situation or particular needs.

StoneX Financial Pte. Ltd., may distribute reports produced by its respective foreign entities or affiliates within the StoneX group of companies or third parties pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the report is distributed to a person in Singapore who is not an accredited investor, expert investor or an institutional investor (as defined in the Securities Futures Act), StoneX Financial Pte. Ltd. accepts legal responsibility to such persons for the contents of the report only to the extent required by law. Singapore recipients should contact StoneX Financial Pte. Ltd. at 6826 9988 for matters arising from, or in connection with the report.

In the case of all other recipients of this report, to the extent permitted by applicable laws and regulations neither StoneX Financial Pte. Ltd. nor its associated companies will be responsible or liable for any loss or damage incurred arising out of, or in connection with, any use of the information contained in this report and all such liability is hereby expressly disclaimed. No representation or warranty is made, express or implied, that the content of this report is complete or accurate.

StoneX Financial Pte. Ltd. is not under any obligation to update this report.

Trading CFDs and FX on margin carries a high level of risk that may not be suitable for some investors. Consider your investment objectives, level of experience, financial resources, risk appetite and other relevant circumstances carefully. The possibility exists that you could lose some or all of your investments, including your initial deposits. If in doubt, please seek independent expert advice. Visit www.cityindex.com/en-sg/terms-and-policies for the complete Risk Disclosure Statement.

ALL TRADING INVOLVES RISKS. LOSSES CAN EXCEED DEPOSITS.

City Index is a trading name of StoneX Financial Pte. Ltd. (“SFP”) for the offering of dealing services in Contracts for Differences (“CFD”). SFP holds a Capital Markets Services Licence issued by the Monetary Authority of Singapore for Dealing in Exchange-Traded Derivatives Contracts, Over-the-Counter Derivatives Contracts, and Spot Foreign Exchange Contracts for the Purposes of Leveraged Foreign Exchange Trading. SFP is also both Derivatives Trading and Clearing member of the Singapore Exchange (“SGX”). SFP is a wholly-owned subsidiary of StoneX Group Inc.

The information provided herein is intended for general circulation. It does not take into account the specific investment objectives, financial situation or particular needs of any particular person. You should take into account your specific investment objectives, financial situation or particular needs before making a commitment to invest, including seeking advice from an independent financial adviser regarding the suitability of the investment, under a separate engagement, as you deem fit. No representation or warranty is given as to the accuracy or completeness of this information. Consequently, any person acting on it does so entirely at their own risk.

The information does not represent an offer of, or solicitation for, a transaction in any investment product. Any views and opinions expressed may be changed without an update. To understand the risks and costs involved, please visit the section captioned “Important Information” and the “Risk Disclosure Statement”.

The information herein is not directed to, or intended for distribution to or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction where such distribution, publication, availability or use would be contrary to law or regulation.

StoneX Financial Pte. Ltd. 1 Raffles Place, #18-61, One Raffles Place Tower 2, Singapore 048616. Tel: 6309 1000. Co. Reg. No.: 201130598R.

This advertisement has not been reviewed by the Monetary Authority of Singapore.