Crude oil has been strong of late and has gained nearly 30 percent over the last four months. Much of this has to due with the exporting of crude and products which has dramatically lowered inventory stocks - overall stocks the lowest since March 2015.
However, we are heading into a seasonally weak period for energy products, and inventories could begin to build. Moreover, US production has recovered from both hurricanes with producers producing over 9 m/bbl per day.
Market sentiment on inflation has also aiding in bidding prices up, but we think there will be an inflection in 5- and 10-year breakevens. This could put pressure on crude as higher inflation hopes begin to wane.
Technically, price is beginning to reject a key technical supply zone between $55.33 and $54.09. This has been a point has been contested three prior times going back to 2015, and each failure to break through has caused hefty pullbacks.
TrendFlex Active score is moderately bullish in regards to trend, but price momentum and volatility range is contracting.
Potential downside targets for crude are $51.94 and $49.01.
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Crude oil technically broke above our range on headline risk due to the Saudi Arabia power consolidation. We believe crude will work its way back lower unless oil production or logistics become stunted due to increased regional conflict.