OPEC Flags Downside Risks to US Summer Demand

Oil (WTI) News and Analysis

• OPEC’s monthly report for March points to concerns over tight monetary policy in the US in as much as it could affect the ‘driving season’
• WTI technical considerations and levels of interest
• IG client sentiment reveals a mixed outlook as sentiment shifts to net short
• The analysis in this article makes use of chart patterns and key support and resistance levels. For more information visit our comprehensive education library

OPEC’s Monthly Report Points to Monetary Policy Concerns

OPEC has raised concern over continued restrictive monetary policy and the potential effect this might have on the typical uptick in oil demand in the US during the summer driving months. The summertime generally sees an increase in oil demand in the US as the warmer weather encourages commuters to head out on their summer holidays.

OPEC highlighted downside risks for oil prices due to continued restrictive interest rates and that such monetary policy could result in reduced oil demand in the summer months. The concerns around restrictive policy and the potentially negative effect on oil demand factored into the group’s thinking before it was decided on April 2nd that OPEC + would cut supply even further than previously agreed (2 million barrels per day).

However, OPEC maintained that despite their concerns, global oil demand would still rise by 2.32 million barrels per day (bpd) which is unchanged from last month.

Oil (WTI) Technical Levels of Consideration

Oil has turned higher once again but is somewhat subdued today as markets digest the new concerns which would indicate lower future oil prices if indeed, we see lower oil demand in the summer months.

Oil prices currently trade within a tight zone of support and resistance. Immediate resistance appears via the 200 SMA while support (recent resistance) appears via the blue zone at 82.50. Further support comes in at the long-term level of 77.40. The RSI index also highlights that further upside may be hard to come by as it approaches overbought territory.

WTI (CL1!) Daily Chart

Source: TradingView, prepared by Richard Snow

IG Client Sentiment Mixed Despite Aggressive Shift to Net Short Positioning

WTI IG Client Sentiment

Source: TradingView, prepared by Richard Snow

Oil– US Crude:Retail trader data shows 44.58% of traders are net-long with the ratio of traders short to long at 1.24 to 1.

We typically take a contrarian view to crowd sentiment, and the fact traders are net-short suggestsOil– US Crude prices may continue to rise.

The number of traders net-long is 1.50% higher than yesterday and 10.97% lower than last week, while the number of traders net-short is 0.45% lower than yesterday and 16.89% higher than last week.

Positioning is less net-short than yesterday but more net-short from last week. The combination of current sentiment and recent changes gives us a further mixed Oil – US Crude trading bias.

— Written by Richard Snow for DailyFX.com

Contact and follow Richard on Twitter: @RichardSnowFX