Crude Oil Futures in Week 9 and Year End Calls
By Chinedu Okoye
Overview:
We wrote earlier last week, crude was expected to close open lower than last weeks close, and "trade sideways to close marginally lower (at around or below support levels)".
That call partly came to pass as BRENT down -2.00% to $72.94, whilst WTI -1.77% to $69.46 in the week. However, Crude stayed above (WTI) and closer (BRENT( to resistance levels than support.
We analyse the number below using our customized spread and average metrics in an attempt to explain these moves.
Crude In the Week:
BRENT:
Brent Crude opened lesser in the week, to close at a -2.00% trading week (Monday - Friday) low at $72.94, this contrasts with last week's close of $74.49 (a -2.47% decline).
WTI:
WTI saw a 1.77% trading weekly decline and a -2.51% decline from last weeks close. In essence both benchmars, drew down marginally with WTI falling more from last weeks close
CRUDE PRICE MOVEMENTS (at the close from November 29th through December 20th):
29/11 | 06/12 | 13/12 | 20/12
BRENT: $72.09 |$71.12| $74.49| $72.94
WTI: $68.50 | $67.20| $71.29| $69.46
AVG: $70.30 | $69.16 | $72.89| $71
SPREAD:$3.59 | $3.92. | $3.20. | $3.48
Spread/Average Analysis:
From the below chart and the table above, there is a trend from week 1 (25/10/2024) to week 9 (20/12/2024).
When crude prices rise on average and spreads widen 20+ cents towards (or crosses) the $4 level, it represents overbought conditions if the average of both benchmarks is above resistance ($71). Prices then revert downwards on a tightened spread.
On a decline, if the spread falls +20cents or goes below $4 resistance levels, or closer to the $3 level and prices is at/or close to resistance, it represents an oversell, and prices revert back downwards towards support.
Ultimately, there are weeks were prices fall and spreads widen and these are typically followed by an upward reversion, prices could also fall and spreads tighten, which could be bearish in the following week.
We analysed the chart below for the 9 week period, based on the above and interpret the findings below in the Spread Average Analysis section.
Spread and Average Analysis:
Week 1-2: The spread moved from $4.56 to $3.67, as both benchmark averages declined from above $73 to $71.65 in week two.
Week 2-3: The reduction in spread in the week ending Dec. 1, to below resistance (<$4), took both benchmarks and their avergaes down, but the tightned spread remained fairly unchanged in the folliwing week (3), as crude remained bid going into week 3.
The average in week 2, has just come down from above $73 above resistance to just within resistance territory at $71.65, and crude was still bid, hence the price increase in the third week. But the spreads tightened further.
Week 3-4: With the average crossing into the $72 level on a marginally tighter spread in week 3 ($3.49), both benchmarks hit resistance and declined in week 4 to an avergae of $69. The spread closed week 4 at $4.10.
Week 4 - 5: The spread increased in week 4 led to a higher WTI bid and BRENT, but because the average dipped to support, both benchmarks were bid in week 5 taking the average to higher $72.93 however, the spread further widened to $4.47
Week 5-7: The widened Spread and increased average (above the $71 resistance), in week 5, took crude prices down in week 6 and declines extended to week 7, where the average closed at $69.16. Spreads closed at $3.92
Week 7-8: With the spreads closed 8 cents shy of the resistance levels in week 7 and as averages hit $69, the market support kicked in and both benchmarks soared into week 8 closing higher than resistance and averages hit $72.89. Spreads tightened indicating a relatively higher bid for WTI.
Week 8-9: Spreads dropping further in week 8 and averages above resistance levels, precipitated —as we predicted in our last post— a marginal decline to $71 as Brent and Crude both closed around and above resistance.
Key Technical Levels:
Support - Resistance
BRENT: $71 $73
WTI: $67 $69
AVG: $69 $71
Though technical levels going into the new year stays unchanged, it is being closely watched through January.
A consistent close further above resistance could make for an upward revision of the above technical levels, whilst a consistent close below support levels may lead to a downward revision.
Year End Calls:
The coming week signals the final trading week of 2024. And the dynamics of the markets haven't changed much, but there has been new developments in the global macroeconomic outlook that can influence the Oil market. However we make judgements going by technicals.
What technicals Say:
The fairly changed spread from week 8 going into week 9 would indicate that crude remains bid an a decline could follow, however prices are just at resistance, and the 9 week historical data as explained in the above section would suggest crude could extend declines –based on the average being at resistance (as in week 6-7).
What Fundamentals Say:
The new macroeconomic landscape however, as given by the major Central Banks monetary policy rate decisions and commentary— a stronger than anticipated US consumer, is positive for Crude, especially WTI.
This, and an all but assured easing by the European Central Bank and People's Bank of China, which are major Oil markets, could pull crude higher in the coming week.
Remarks and Conclusions:
Crude Oil demand seems fairly stable, as the US inflation and consumer data last week saw a climb as CPI rose 2.7% higher than expectations, signalling a stronger than earlier perceived consumer. This strenght coupled with prospects for a stronger dollar going into 2025 —in our opinion— kept bids higher, because buying at current USD rates seem like a discount when expecting USD to appreciate.
Our gradual climb thesis holds as Crude continues to hold above resistance levels, for the second week in a row. This is as prospects for higher US inflation relative to peers, and all but priced in easing in the Eurozone and China, could keep Crude oil bid into 2025 taking it to our H1 2025 price.
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