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3 Factors which could test the Uptrend in Crude Oil

Bullish oil rally is another talk of the trading town apart from bitcoin and Stock markets. In the previous few months, oil prices have risen by 12.2%. Many potential factors joined together and pushed Brent Oil above $70 and WTI Crude oil to $66, but this rise may face a potential obstacle in coming weeks. Let’s take a look at some of the potential factors that would result in big challenge for the oil Uptrend

3 Factors will affect the Price action Rally in Crude Oil

US Dollar – Crude Oil Intermarket relationship in Price action

One of the major reasons for the boost in oil prices is probably declining U.S dollar in the past year. Since oil is denominated in dollars, a weaker dollar helps lift demand and Crude Oil prices.The correlation between US Dollar and Crude Oil was clearly noted last week when Secretary of Treasury Steven Mnuchin showed some support for weak dollar policy. After his comments, oil prices increased as a result. Also when US dollar increased on Monday, WTI was down more than 1.25% indicating correlation between the instruments. If US Dollar reverses the Trend, it may result in potential reversal in Oil Prices due to Intermarket relationships.

Raising Inventories can change the Market sentiment

The Declining oil inventories is also an important variable for fueling the rally over past two months. This may change in coming months.Some of the forecasters such as the IEA and OPEC have predicted that inventories would begin to rise again in the first half of 2018. If that happens then possibly the prospect of a return to storage increases and Oil inventories might rise again. According to API report, there was an unexpected rise of 4.75 million barrels for the week ending on January 17.The weekly EIA reports have started to showcase the ongoing gains in U.S. oil production, meanwhile reporting a bounce back in inventories. Rising Inventories can change the Market perception and sentiment in Oil Prices.

Speculative Positions and Institutional Players

Another important driver of higher oil prices in the past few months is speculative positions taken by Hedge funds, Institutions and other money managers in Crude Oil. Speculative demand from these large market players has pushed oil prices into further highs. In fact, hedge funds and other money managers continued to break new records for the volume of bullish bets on crude oil in the past months.But now these large players have started to unfold some of their earlier bullish positions; if they start pulling out or liquidating their trades quickly then crude prices could see a sudden and sharp fall. (Doesn’t it sound like a precursor for the Distribution Phase)

All these don’t means to say Crude Oil trend will stop or end. Keep in mind, the global Oil demand is big and there’s still more room for Oil prices to increase in the long run, but the factors which caused the recent uptrend such as weak dollar, falling inventories and Institutional bets are starting to fade away. So the Uptrend in Crude Oil will face major obstacle in coming weeks.

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About the Author:

Balaji is a Speculator, Investor and Trader (All in All!!!) and self published author. Trading in the Markets since decade, have seen more ups and downs along with institutional trader's lifestyle. He usually trades Nifty, Bank Nifty, Commodities, Futures cum Options around both Indian and global Markets. Balaji applies highly analytical and systematic Price Action strategies He blogs passionately about Trading strategies, Price Action Trading, Technical analysis, Macro events, Market setups, Financial and Economical topics. Apart from Trading and Blogging, Balaji also mentors aspiring Traders and Investors on becoming successful in highly competitive financial Markets.

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