In terms of the commodity complex, we have seen a big bull run in commodities as speculators buy on the view of a strong global economic recovery going forward and crude oil has made a huge move to the upside will it continue to the upside or will we see a correction? Our view of crude oil in terms of the fundamentals, sentiment and technicals below:
USD Strength & Weakness in Relation to Crude Oil
Crude oil has been firm on economic recovery hopes but has also benefited from a weak dollar but we have seen the USD start to steady and move higher. In terms of the chart below, we have the biggest short position in the USD since 2011 and the chart below shows the USD 2 X standard deviations from the mean. A big dollar rally is close in our view and if it does mount a major rally this is bearish for all commodities including crude oil:
Crude Oil A Speculative Bubble
In terms of crude oil on the weekly chart below we can see the recent rally from the 40.00 level has seen a percentage change increase of 47% in just a few months. The move has been driven by speculators and NOT to do with the true supply and demand fundamentals which do not justify the rise. A question to ask when looking at this chart is we are back to pre-pandemic price levels – Is the global economy really stronger now than then? The answer is no in our view. We are expecting a move longer-term back to the 40.00 level which we think is “fair value” for crude oil:
The Good News Priced in Going Forward? LOOK At Crack Spreads
In terms of the good news being priced in: “ The market is forward-looking and the vaccine impact in terms of allowing the global economy to return to sustained growth is already discounted: “Looking at the forward product cracks they are in contango and have the Vaccine Rainbow already “priced in”.
Crude Oil Daily Chart – Some Weakness and More to Come?
We view crude oil as a sell on a rally back to first level resistance or on a break of the 20 day Moving Average (Green Line) Due to the large speculative long position if we do start to fall and speculators exit on stop, we should see a major move to the downside support levels are 52.00, 50.00 then 40.00.
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