Update on Crude Oil

Update on Crude Oil

           

                    Now is the time to update on my pervious call in coming days. Firstly, I go though the call on long crude oil (post). In my previous post(red line on the figure 1), I say ‘My bottom line is that Crude oil had been likely to reach a bottom and significant rally will take place. However, the rising trend tends to be unstable at the beginning after a waterfall decline. Bears and bulls fight against each other at this moment so the trend may fail to breakthrough several times so don’t forget a stick risk management in following the trend. ‘.

                    Figure 1: My call on crude oil(Red line).

Source: Stockchart.com

Finally, Crude oil undergone a pullback to test previous Feb bottom and made a double bottom to resume the rebound over 30%. It raises the question: Is it the end of rebound? My answer is no.

Figure 2: The world economy keep improving when we see Manufacturing PMI diffusion index (It means the number of countries getting higher PMI than previous 1 month is more than that getting lower.). Demand for Oil is likely to keeping up.

Source: Gavekal Capital

                      Figure 3: US 5 year Breakeven Inflation Rate get convergence with rise of crude oil. Credit market view the uptrend of crude oil is not temporary.

Source: St Louis Federal

                         Figure 4: Crude Oil sentiment still is near pessimistic level. If investor is getting optimistic, it will fuel the rally of crude.

Source: SentimentTrader

                          Figure 5: On the contrary, US dollar still is at extremely optimistic level. I expect it will take a correction and favor the rally of crude.

Source: SentimentTrader

                

                               Figure 6 and 7: US oil production seems to begin to decline and inventory is likely to hit a peak.

Source: Bloomberg and Soberlook

                           My takeaway is that the rally of crude oil still is on the right track. Especially, the price refuses to hit new low when there are more bad news such as the record high inventory and Iran 5+1 negotiation. It is a bullish reaction to crude oil.