Is Crude Oil’s Rally Driven by Speculation Only?

Written by: Sebastien Bischeri

After the surge, the WTI Crude Oil still faces some global risk sentiment strong enough to make it fly higher. Will it pop like a helium balloon?

Fundamental Analysis

It appears that oil prices are being supported by speculators who have ignored signs of a slowing economy around the world. Nonetheless, the black gold may face a bearish supply forecast soon, which could potentially put it at risk of a pullback.

Furthermore, with a disappointing GDP in China in the third quarter and industrial production falling in September in the United States, the world's two largest economies have lost momentum, which could affect the level of energy demand.

Consequently, this context of state interventionism on energy prices is likely to reduce the transfer of demand from the coal market to petroleum products, depriving the crude of one of its wings that lifted it for a number of weeks.

U.S. API Weekly Crude Oil Stock

Inventory levels of US crude oil, gasoline and distillates stocks, American Petroleum Institute (API) via Investing

Regarding the API figures published Tuesday, the increase in crude inventories (with 3.294 million barrels versus 2.233 million barrels expected) implies weaker demand and is normally bearish for crude prices.

However, we have to see whether or not these figures will be confirmed by the weekly Energy Information Administration's (EIA) report.

If that scenario is confirmed by the EIA’s figures later today, then the black gold may be set for a corrective wave, possibly back to previous support levels.

WTI Crude Oil (CLZ21) Futures (December contract, daily chart)

In conclusion, anything can happen in this market in the forthcoming days… Therefore, no position in the WTI Crude is justified from the risk-reward perspective at the moment. However, things change quickly, and when they do, you don’t want to miss it! Subscribe to our premium Oil Trading Alerts to be the first to know about our trading outlooks, which are published as soon as opportunities arise.

Related: How the Recent Natural Gas Surge Boosts Crude Prices

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