Weekly Fundamental Crude Oil Price Forecast: Neutral

• Volatility in global markets is persisting, but for now it’s still translating into a mostly bullish environment for energy prices amid supply chain concerns and an energy supply production deficit (relative to demand).
• Despite the ongoing bullish fundamental environment in the near-term, the narrative may soon begin to shift as traders look towards next year.
• The IG Client Sentiment Index suggests that crude oil prices have a mixed trading bias.

Energy Prices Week in Review

Volatility in global markets is persisting, but for now it’s still translating into a mostly bullish environment for energy prices amid supply chain concerns and an energy supply production deficit (relative to demand). Despite calls for increased oil production from OPEC+, Saudi Arabia – the most significant member of OPEC+ – said that the group was already “increasing production.”

OPEC+ will continue to increase oil production by 400,000 barrels per day (bpd) in November and in the following months, noted Saudi energy minister Prince Abdulaziz bin Salman last week.

Crude oil prices added another +3.69%, closing at 82.28 per barrel, their highest level since October 2014. Meanwhile, Brent oil moved up by +2.11% at 84.84 per barrel, finishing at their highest level since October 2018. Elsewhere, natural gas prices tallied their third-highest close of 2021 despite losing -2.79%, finishing at levels unseen since February 2014; the contract closed at 5.410 MMBtu.

Despite the ongoing bullish fundamental environment in the near-term, the narrative may soon begin to shift as traders look towards next year. Saudi energy minister Prince Abdulaziz said that 2022 was looking like “a bit of a challenging year,” as OPEC+ figures show that the oil market is due to return to a surplus of 1.4 million bpd.

Economic Calendar for the Week Ahead

The third week of October sees a generally lighter economic calendar from the world’s major economies; there is only one ‘high’ rated event on the DailyFX Economic Calendar for the United States. But as is the case every week, and particularly recently, mid-week energy inventories figures should prove the most impactful for crude oil prices.

• On Monday, Oct. 18, Q3’21 Chinese GDP figures are due.
• On Wednesday, Oct. 20, September UK inflation rates (CPIH) will be released ahead of the final September Eurozone inflation rates (HICP). September Canadian inflation rates (CPI) are also due before the weekly EIA inventories figures (for the week through Oct. 15).
• On Thursday, Oct. 21, September Japanese inflation rates (CPI) will be released.
• On Friday, Oct. 22, the flash October US Markit Manufacturing PMI is due shortly after the US cash equity open.

Crude Oil Price vs. COT Net Non-Commercial Positioning: Daily Timeframe (October 2020 to October 2021) (Chart 1)

Next, a look at positioning in the futures market. According to the CFTC’s COT data for the week ended Oct. 12, speculators increased their net-long oil futures position to 483,511 contracts, up from the 454,271 net-long contracts held in the week prior. The futures market is the most net-long since the week of Aug. 10, 2021, when 509,158 net-long contracts were held.

IG Client Sentiment Index: Crude Oil Price Forecast (Oct. 15, 2021) (Chart 2)

Oil - US Crude: Retail trader data shows 35.82% of traders are net-long with the ratio of traders short to long at 1.79 to 1. The number of traders net-long is 4.95% lower than yesterday and 10.70% higher from last week, while the number of traders net-short is 2.38% lower than yesterday and 4.19% higher from last week.

We typically take a contrarian view to crowd sentiment, and the fact traders are net-short suggests Oil - US Crude prices may continue to rise. Positioning is more net-short than yesterday but less net-short from last week. The combination of current sentiment and recent changes gives us a further mixed Oil - US Crude trading bias.