6 Positive Signs for Crude Oil

posted in: crude oil, Energy, oil stocks, OPEC | 0

There are some constructive signs mounting in crude oil:

  • Demand has clearly picked up in the US as drivers enjoy sub-$2 gasoline prices in many parts of the country

Consumption_of_Gasoline

  • Sentiment on crude oil is the worst its been in a very long time, by many gauges it is worse than it was at the 2008 lows

Crude_Sentiment

  • We are at a point in the calendar year in which crude typically puts in a major seasonal low

CL_20-year_seasonality

In fact, there is a trade that begins in 2 weeks which has been profitable 25 times in the last 31 years for a cumulative profit of $91,890 based upon a single crude oil futures contract.:

Crude_trade

  • There are growing signs that ‘excess’ US shale oil supply is rapidly being turned off as evidenced by this recent chart from the EIA:

Rig_count

The rig count in the lower 48 states has dropped 16% in the past couple of months and is expected to continue to fall through the 3rd quarter of 2015. According to the EIA forecast oil production is currently peaking and will decline slightly between now and the end of 2015 before picking up again during 2016.

  • Oil stocks have begun to turn the corner and have stopped going down in recent weeks – Historically this bullish divergence between publicly traded oil stocks and crude oil has been a positive leading indicator for the underlying commodity.

Oil_stocks_1.27.2015

  • Technically speaking the crude futures (CL) chart has formed a constructive pattern during the past couple of weeks and there is potential for a double-bottom to form which will be confirmed on a daily close above $49:

CL_Update_chart

It is still far too early to officially “call a bottom”, however,┬áthere are mounting signs that one might be close and that the new equilibrium range for crude oil is more likely to be in the $50-$70 range.