In the latest edition of the Weekly Macro Themes report we talked about the likelihood of further short-term downside in the oil price based on a few factors. However this is a tactically bearish view and our view is that oil will go higher over the medium term as the market slowly but surely rebalances, OPEC resolve gets put to the test, and geopolitics continue to bias risks to the upside.
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In the short-term however you need to have reliable and credible indicators to provide guidance on timing whether you are long-term focused or short-term focused, and the two charts below provide an insight in that respect. The first one shows how crude oil implied volatility will often spike around a market bottom, and so far it's been relatively tame - when/if it spikes we will become very interested from a contrarian point of view. A similar and complimentary indicator is speculative futures positioning, which has indeed come down from extreme bullish levels, however it's still not quite at a capitulation point where we would become high conviction bullish on a contrarian basis. So keep watching the indicators as buying opportunities may well present in the coming weeks.
Crude oil volatility has turned up after making post-crash lows, a pattern consistent with a fall in oil, and yet it has not spiked to the degree that it has in the past when the market is near a bottom.
Crude oil speculative futures positioning has come down a lot, but could go further, and should it go further it would start to build a contrarian bullish case.
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Article by Callum Thomas, Top Down Charts
