Bearish on Crude Oil for Next Three Months, Target $49.00, Stop at $56.00

As many people have thought Crude Oil is going up to $60 or $65 per barrel, Reflexive Prophecy is taking a bearish stance on the Crude Oil.

We believe the reasons are a bit counter intuitive, as OPEC and non-OPEC nations just reached an agreement to curb production levels. However, sometimes this kind of set-up produces some of the best trades as those typically are unexpected.

Sentiment & Expectations: 

  • Crude oil long positions are very crowded. The speculative long positions are back to the 2014 July level, right at the moment when Crude Oil started a bear market.
  • A lot of the sell-side and buy-side research analysts are bullish on oil and they are targeting $60 to $65 per barrel.
  • Saudi Arabia and other OPEC nations don’t expect U.S. shale oil companies to be able to ramp up oil production, whereas the rig count number says otherwise.

Fundamentals:

  • The supply and demand fundamentals of the Crude Oil market certainly don’t justify such bullish sentiment and expectations. The crude oil production decline has stalled and started going back up at $50 per barrel.
  • The cash costs of the shale oil companies have dropped by 30% to 40% and have continued to drop.

capture

  • Trump administration’s will to make United States an oil independent country. That means shale oil companies are more than likely here to stay and compete.
  • Strength of dollars

Events:

  • All the major bullish events have passed. What’s left is the match of the agreement and reality that whether the different oil producing nations are willing to cut as agreed.

Market Conditions:

  • The price has tested above $54 per barrel twice and failed.
  • A potential head and shoulder top is forming, which pushes the price down to $46.
  • A breakout of the wedge today validates and initiates the first part of the reinforcing trend.

capture

Reasons to be Wrong:

  • Technical reasons
  • Further bullish news/events from OPEC and non-OPEC nations to continue the previous bullish trend

Conclusion:

we spot a potential negative confirming self-reinforcing trend brewing and we are here to initiate a bearish note on Crude Oil.

Current Price: $54.40 (April contract, previously March contract at $52.50), Target: $49.00, Stop: $56.00.

Term: Three Months, Reward to risk: 3.4:1.

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