Went long the barrel? Beware of the headwinds ahead

Sébastien Bischeri Sunshine Profits

Falling oil demand and bearish US inventories are not of any good to WTI investors. However, a deeper slide might be a great place to enter the trade…

Fundamental analysis

The Organization of Petroleum Exporting Countries (OPEC) has downgraded its estimate of world oil demand for 2021. The demand has been lower than expected so far despite strong prospects for the end of the year.

In fact, in its monthly report, the cartel estimates that oil demand will rebound by 5.82 million barrels per day (mb/d) this year, while it forecast 5.96 mb/d last month.

Global crude demand is therefore expected to reach 96.6 mb/d this year.

As a reminder, the member countries of the cartel and their allies (OPEC+) chose at the beginning of October to renew their strategy of a modest increase in production, ignoring the calls to open the floodgates further and thus propelling prices upwards.

By the way, the two oil-producing countries that contributed the most to this increase are Nigeria and Saudi Arabia.

US 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 on Wednesday, the increase in crude inventories (with 5.213 million barrels versus 140k) was more than expected – this implies weaker demand and is bearish for crude prices. However, we have yet to see whether or not these figures are confirmed by the weekly Energy Information Administration's (EIA) report published later today.

If this scenario is confirmed by the EIA’s figures later today, then the black gold will be well set for a deeper correction, possibly back to its lower support levels – levels which, by the way, were provided yesterday to our premium subscribers, along with our most recent projections.

WTI Crude Oil (CLX21) Futures (November contract, daily chart)

Finally, to wrap up today’s article, we have seen a few choppy days on the energy markets with some contradictory data to interpret. This uncertainty usually leads to a ranging market, which can be an interesting place for some shorter- term trades. For a longer-term trade horizon, it is necessary to combine some fundamental analysis with your charting and be patient.

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Author

Sébastien Bischeri

Sunshine Profits

Sebastien Bischeri is a former Reserve Officer in the French Armed Forces (Navy), and began his career in computer science and engineering, prior to move into banking, finance, and trading.

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