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For months, the story in crude oil has been bullish. But some recent developments may show sentiment is turning.
First, look at inventories. The government says they rose by 3.8 million barrels last week, while forecasters had anticipated a decline of about 2.4 million barrels. It was the second unexpected increase in the last three weeks.
Next, look at the economic backdrop. Chinese manufacturing indexes have missed estimates for several months, while Europe showed slowing in July and had weak growth in the second quarter. Even the U.S. has been less-than-stellar recently. Just look at June’s durable-goods orders and housing data. Remember, oil tends to follow economic activity.
The other big catalyst has been geopolitics after President Trump announced sanctions would be on oil exporter Iran. But the Administration has kept a lid on prices by getting key ally Saudi Arabia to boost supply. Today there’s even a report that Houthi rebels in Yemen (viewed as puppets of Iran) will reduce hostilities with Riyadh.
In other words, there are signs of calm shortly before sanctions take effect on August 6.
In conclusion, this isn’t a trade recommendation and everyone needs to do their own homework. But the bullish case for oil may be losing catalysts for the time being.
Crude oil futures (@CL), with 50-day moving average.
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