Oil’s nice ride looks set to end this autumn, says a blog at Slope of Hope.
Since late 2014, WTI crude prices have closely tracked U.S. inventories (via the Energy Information Administration), which means rises in prices have matched falls in stockpiles, says Rohit Goel, in a contributing post.
The strength of oil’s rally can partly be attributed to the rumors of a production freeze, which came in the leadup to the Doha summit back in April. That chatter kept WTI prices high, as market players anticipated inventory levels would be lower in future.
That relationship should have corrected and pushed WTI prices back down when no deal emerged. But it didn’t, due to constant jawboning from OPEC officials, natural disasters and terrorist attacks, says Goel. The blogger then lists a lot of other reasons why the oil market should be correcting.
“Putting it all together, the supply/demand imbalance and the headwinds posed by the U.S. dollar paint a very bleak picture for oil prices,” says Goel, adding that oil and its fundamentals usually don’t stay disconnected for too long. The break is coming.
“As we head into the fall maintenance period, the divergence between WTI prices and cumulative inventories should reverse, and a retest of the recent low of $39 is on the cards. If support at $39 ... breaks, expect fast money to pile into the short side and WTI to drop to mid-$30s in a hurry,” says Goel.
