Crude OIl Today - When you get it right but wrong at the same time

Market Analysis /
Greg McKenna / 12 Sep 2018

Welcome to Crude Oil Today, my brief look at what's happening in oil markets and what it might mean for prices. 

As ever, feedback welcome

QUICK SUMMARY

Oil had a spectacular run higher overnight with the combination of the Hurricane(s) bearing down on the US and apparently renewed concerns about supply disruptions saw prices spike close to 3% for Brent which now sits at $79.06 while WTI is at $69.87 up more than 3%. 

BOOM, as I often write. 

BIGGER PICTURE

Time for a reality check folks - bear with me. 

It feels like the only thing I got right about the oil market over the past 24 hours was that the API inventory data would be important. The 8.6 million draw is spectacular. Of course, as I wrote and said in my video yesterday, I wasn’t getting bearish unless the low two days back gave way and I also said if the previous days high was taken out it would be a sign to buy.

But I didn’t do that, and I didn’t take my buy signal in Brent yesterday morning. I guess I just lost a bit of confidence I had a clue about oil in the past two days. I called it right though – a break either side was the signal. I know a few folks took it.  

The source of my trouble was the narrative.

As I’ve written in the past sometimes I feel out of synch, when I see news which the market hasn’t reacted to and thus assume it's in the price. But then find when Reuters, Bloomy, and other newswires then make a story around that data or news the market reacts. It’s almost like the headline chasers are being fed.

Anyway – shakes head, shrugs. I don't know what is is about oil lately. 

To the news then, and Russian Energy Minister Alexander Novak said overnight that oil prices could easily fall. Which they could if the trade war knocks global growth. But of course they rose last night on the back of the hurricanes bearing down on the US, more chat about Iranian sanctions, delayed reactions to news – again published – about US exports to South Korea and also Japan.

And of course WTI was sitting at important support, and Brent broke back above the previous downtrend. Here’s the WTI chart again. If it takes out that spike high from last week – which is acting as the resistance level – we could see it run to the recent highs.

Click on me, I'll expand
Click on me, I'll expand

AND, AND, AND – I know some of EW friends say oil is nearing an inflection point which could see it fall substantially, but I wonder if the globe isn’t setting itself up for a period where prices spike materially again. CNBC has an article saying “Why a 'new energy order' is threatening shareholder returns for oil companies”. But I wonder, structurally and medium term if the ESG approach doesn’t also lead to underinvestment in oil production. It’s something various OPEC members have been saying for a while now. Something to watch.

Please note I talk about both Brent and WTI each day in my Markets Video.

DATA:

Looking ahead the Westpac Consumer Sentiment data today will be important. Where yesterday’s NAB business survey showed a dip in confidence but resilient underpinnings consumer confidence could print poorly given all the headwinds. We’ll see. Otherwise it’s a fairly quiet 24 hours of data. The EIA inventory data tonight is going to be important – especially after the massive draw (8.6 million barrels) for API. We also have PPI in the US, mortgage applications and speeches from the Fed’s Bullard and Brainard. Before that the Euro Area has industrial production.

Have a great day's trading.

Greg McKenna

Chief Market Strategist

gregmckenna.com.au

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