On Wednesday, WTI crude oil active futures have declined 0.1 percent and settled at $41.90 per barrel. On a year-to-date basis, WTI active futures have fallen 31.4 percent. The United States Oil Fund LP tracks the WTI grade of oil. The USO declined 71 percent in the last year. Fund expenses could be the reason behind USO’s underperformance compared to oil.
Yesterday, the EIA released the crude oil inventories report for the week ended July 17. The EIA’s report showed a draw of 4.89 MMbbls (million barrels)—double analysts’ expected fall of 2.1 MMbbls. The bigger fall in inventories is a positive development for oil prices.
The EIA’s STEO report suggests a fall in global oil inventories for the rest of 2020. The fall in oil inventories could continue to 2021—a positive development for oil prices. In the last six months of 2020, the EIA expects that Brent crude could average $41 per barrel on a monthly basis—a rise of $4 from the previous estimate. In 2021, the figure could rise to $50 per barrel. Earlier, the EIA estimated the Brent crude oil monthly average at $48 per barrel for the next year. Usually, WTI crude oil prices trade at a discount to Brent oil prices. However, any rise in Brent oil could also drive WTI crude oil futures.
Oil prices’ technicals and volatility
On Wednesday, WTI crude oil active futures settled 37.5 percent, 13.6 percent, and 4.4 percent above their 20, 50, and 100-day moving averages, respectively. Oil prices above short-term moving average suggest a short-term rally in active futures. Also, the 50-day moving average was just 0.3 percent below the 200-day moving average. If the 50-day moving average moves above the 200-day moving average, the rise in oil prices could continue.
When a short-term moving average moves above the long-term, it is called a 'golden cross.' Usually, oil prices move up after this type of cross-over. On Wednesday, crude oil’s implied volatility was at 37.2 percent. Based on that implied volatility, WTI oil prices will likely close between $43.90 per barrel and $39.90 until July 29.
In April, WTI crude oil active futures turned negative for the first time. On April 21, oil’s implied volatility was at 383 percent. Yesterday, oil fell to 37.2 percent. The fall in oil’s implied volatility coincides with the rise in prices. Another fall in the implied volatility might pave the way for higher oil prices.