WTI-Brent Spread Nearing Parity

By Dean Rogers

The U.S. rig count rose by 17 last week, and according to the EIA, U.S. crude oil supplies have reached 490.7 million barrels, the highest reported level for this time of year since 1930. In addition, the U.S.’s repeal of the 40-year oil export ban could ultimately encourage more pumping from domestic crude oil producers and narrow the WTI-Brent spread closer to parity in coming weeks. This is possibly good news for domestic producers, though it will take months and perhaps years before we will truly know. Overall, it is being reported that these factors could prolong the supply glut that is projected to last through the end of 2016 and possibly beyond.

The narrowing WTI-Brent spread is a being driven by WTI’s deeper contango versus Brent. In January 2015, the two grades were trading near parity, and it looks like this will be the case again in early 2016. This is encouraging for some U.S. producers as the spread could extend into positive territory where $2.60 is a confluent projection. However, longer-term, a narrow spread would likely lead to increased U.S. production, which would be negative for WTI. Conversely, a positive spread could encourage Brent producers to cutback, thus spurring both grades higher over the course of the longer-term. The key will be seeing whether or not the spread becomes positive and remains that way for the next few months. If so, it could lead to a longer-term shift in production strategies, and ultimately prices, world-wide.

WTI-Brent-Spread

Another factor to watch right now is the calendar spreads and the cost of carry. The six-month average cost of carry narrowed a bit for WTI and Brent last week, but remains volatile. Typically, a carry above approximately ($0.50) encourages those with storage to buy oil now, store it, and then sell it at a later date when prices are higher (due to deep contango). This is fundamentally negative because supply rises. The six-month average costs of carry for WTI was ($0.93) and for Brent ($0.79) as of Friday’s settlement.

CostOfCarry

The technical agree with the negative fundamental and spread factors right now. Most momentum indicators are oversold and setup for divergence on the weekly and daily charts. Therefore, a correction might take place soon. However, until a swing low in both price and momentum are made look for the decline to continue. Over the next day or so we expect WTI to fall to $35.0 and for Brent to challenge $35.6. Both are crucial targets to connect to much lower levels as discussed in our full weekly analysis.

This is a brief analysis and outlook for the next day or so. Our weekly Crude Oil Commentary is a much more detailed and thorough energy price forecast. If you are interested in learning more, please sign up for a complimentary four-week trial.

By Dean Rogers

For the past few weeks each bit of positive crude oil news or fundamental data has seemingly been offset by something negative. As a result, November Brent has settled into a rectangle formation with boundaries between $47.0 and $50.3.

The upper boundary of the rectangle is poised to be challenged after Monday’s move up to $49.87. The pullback at the end of the day indicates another oscillation lower might take place first, but for now, odds still favor a break higher. A close over $50.3 would call for at least $51.7.

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Conversely, Brent’s move up has already failed once after breaking higher out of a bullish pennant on September 15. Since then the rectangle has formed. Should the rectangle fail, and prices close below $47.0, look for at least $45.3.

This is a brief analysis and outlook for the next day or so. Our weekly Crude Oil Commentary is a much more detailed and thorough energy price forecast. If you are interested, please sign up for a complimentary four week trial.

By Dean Rogers

Last week we stated WTI and Brent would likely settled into trading ranges while sorting out longer-term fundamental factors and the late August price surge. That has been the case, and so far the oscillations have formed a flat descending triangle for WTI and a pennant for Brent.

WTI and Brent patterns

Both patterns are bullish, but have a higher than normal probability to fail in our opinion. Even upon a break higher we do not expect a bullish rally to ensue, but rather a test of the recent swing highs.

Should the patterns fail look for major support at $42.6 for WTI and $46.7 for Brent. In other words, we think the trading range will continue to form between approximately $42.6 and $49.0 for WTI and $46.7 and $52.0 for Brent.

This is a brief analysis and outlook for the next day or so. Our weekly Crude Oil Commentary is a much more detailed and thorough energy price forecast. If you are interested, please sign up for a complimentary four week trial.

By Dean Rogers

Many market participants are skeptical of Brent’s meteoric rise over the past three days. However, there is no denying the positive technical factors that indicate a bottom has likely been made. The monthly morning star setup and hammer, weekly bullish engulfing line, and daily three white soldiers candlestick patterns are reliable reversal patterns. KaseX also triggered reversal signals (gray arrows) early last week.

Brent Oil

Brent is on the teetering edge of confirming a sustained bullish outlook and has risen to the 50-day moving average at $54.47, the 38 percent retracement from $71.68, and the upper standard deviation band. A close over $54.5 will confirm a positive outlook and call for $55.4 and higher.

That said, because of the confluence of technical resistance at $54.5 this is a very likely stalling point. We expect a test of support at $51.9 within the next few days and likely before Brent closes over $54.5. A close below $51.9 would call for $50.6 and $49.7. The latter must hold for the near-term outlook to remain positive.

This is a brief Brent oil forecast and outlook for the near-term. Our weekly Crude Oil Commentary is a much more detailed and thorough energy price forecast. If you are interested, please sign up for a complimentary four week trial.

By Dean Rogers

On Friday evening I sat down to write Kase’s detailed weekly forecasts on WTI crude oil and Brent with an image of Chicken Little running around warning all of his pals that the sky is falling. This is a feeling that resonated with many market participants around the world as stock indices and commodities have plunged lower.

The reality is WTI and Brent will find a bottom soon, and there are logical/technical points at which these bottoms could form. From a technical standpoint, WTI crude oil is already well oversold and due for a correction. There are daily and weekly divergence setups on many momentum indicators, including our own KaseCD and KasePO, but this has been the case for weeks. Therefore, until a significant retracement takes place, reversal patterns form, and the daily and weekly momentum divergences are confirmed, the outlook will remain negative.

WTI met major support at $37.9 when it fell to $37.75 early Monday and settled at $38.24. Given today’s price action though, it looks as though the decline is going to continue to extend. WTI pulled back to $39.5 where an intraday double top formed, and the pattern was confirmed when prices fell below $38.3. The projection for the double top is $37.1. Look for at least $37.52, the 1.618 projection of the wave down from $39.5, and then $37.1 tomorrow.

crude oil

The small pullback from $37.83 may extend to $38.45 and even $38.88 first. The 38 percent retracement of the decline from $39.46 to $37.83 is $38.45 and the 62 percent retracement is $38.88. The latter is also the 0.618 projection of the wave up from $37.75 and is expected to hold. A close over this would call for an extended upward correction.

This is a brief analysis and outlook for the near-term. Our weekly Crude Oil Commentary is a much more detailed and thorough energy price forecast. If you are interested, please sign up for a complimentary four week trial.

By Dean Rogers

The world’s supply of crude oil continues to outpace demand, and consequently the global supply glut is being forecast through 2016. WTI fell to its lowest level in over six years last week and Brent is inching its way closer to testing the $45.19 low made on January 13, 2015. A move below this would be the lowest price at which Brent has traded at in over six years.

Structurally, the market is overdue for a correction and Brent’s daily morning star setup, a bullish candlestick pattern, warns that such a correction might take place soon. The decline’s momentum is also weakening, and there are daily and weekly divergence setups for Brent.

Brent and products attempted to stabilize and even rise in a corrective manner last week, but the move stalled. On Friday Brent crude broke lower out of the intraday coil shown below on the $0.50 Kase Bar chart.

brent crude

The break lower out of the coil indicates the decline should continue. The waves projections down from $55.0 (green), $51.69 (light blue), and $50.83 (blue) call for at least $47.9. This is a confluent wave projection that connects to $46.9 and finally $45.5.

The move down is becoming a grind, but until Brent crude can close over at least $49.9, look for the move down to extend. A close over $49.9 would at least create the potential for an extended upward correction.

This is a brief analysis and outlook for the near-term. Our weekly Crude Oil Commentary is a much more detailed and thorough energy price forecast. If you are interested, please sign up for a complimentary four week trial.

By Dean Rogers

Crude oil has taken on a strong bearish tone. There is very little technical evidence, and even less fundamental evidence, that the decline is going to end. However, it is almost always darkest before dawn and there are a few factors that show a correction should take place soon.

Last week’s update discussed major support at $47.0 for WTI and September Brent crude oil is quickly approaching major technical support at $52.8. This is the 1.618 projection for $71.37 – 62.3 – 62.49, the 0.618 projection for $67.49 – 55.6 – 59.9, and the lower Bollinger Band. The KasePO, shown in the middle panel of the chart above, and KaseCD, in the bottom panel, are setup for divergence and nearly in oversold territory. These factors indicate $52.8 is a potential stalling point and that a correction might take place before the decline continues to the next targets.

Brent

A normal correction will hold $55.6, the 38 percent retracement from $59.9. Key resistance is $57.2, the 62 percent retracement. We expect $55.6 to hold before the next leg lower takes place.

This is a brief analysis and outlook for the near-term. Our weekly Crude Oil Commentary is a much more detailed and thorough energy price forecast. If you are interested, please sign up for a complimentary four week trial.

The WTI-Brent spread has been fluctuating in a range for the past few weeks after narrowing to an intraday high of (3.34) on April 15. The narrowing spread has supported rising WTI and Brent price, and the wave formations indicate the spread will most likely continue to narrow. However, it must overcome (5.50) to make the connection to a (4.30) decision point. A close over (4.30) would open the way for a confluent (2.30) target, which connects to (1.30). That said, a close below (8.40) would call for the spread to wide again to at least (10.3).

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WTI-Brent Spread

Brent crude oil prices will likely test a key decision point at $68.0 this week. This is the 1.00 projection for the wave up from $50.1, and a confluent projection for the sub-waves up from $53.63. A close over $68.0 would confirm that a long-term bullish recovery is underway. Narrowing calendar spreads support the move up, but are still wide by historic standards. First class long permissions (blue dots) on the KEES indicator also confirm the positive tone.

That said, momentum is waning on the KaseCD and is setup for a bearish divergence (higher high in price with lower high in momentum). The KasePO is quickly nearing overbought territory. There are also a daily bearish hanging man and evening star setup. These and a few other negative factors tell us that Brent will likely stall at $68.0. We expect to see a significant correction take place to test the mettle of the market before the move up extends much higher than $68.0.

To learn more, take a trial of Kase’s weekly crude oil forecast.

Brent Crude

The WTI-Brent spread narrowed to ($5.81) on Monday and will likely continue to narrow over the next few days as it approaches a key threshold at ($4.40). This is the 62 percent retracement of the decline from $1.01 to ($13.13). The narrowing spread is currently a result of strengthening WTI prices and a weaker outlook for Brent. Ultimately, weaker Brent prices and a narrow spread could put another wave of downward pressure on both WTI and Brent. It will likely take at least a few more days, but look for the spread to stall near ($4.40).

Take a trial of Kase’s Weekly Crude Oil Price Forecasts.

WTI-Brent Spread