Oil Prices Soar 4%... Even After Bad News. What’s Going On?

On April 15th, I discussed the reason why I was short oil, and since then, the negative outlook hasn't changed much, but the price has.

My target for oil was between $55.00 and $55.50, and as the price developed, I ended up taking profits around the higher price point. The reason I took profits made me question the trade, and when I get new information that could put an end to the trade, I get out.

Remember, we can't be afraid to cut trades as we get presented with new information.

So what happened?

The price of oil continued to fall after a number of negative headlines. These headlines mainly stemmed from OPEC+ and the negative growth data from the United States. I know this because I pinpointed the events on the chart.

On Wednesday 23rd April, OPEC+ members suggested accelerating output in June, Kazakhstan increased oil output to the benefit of their national interest, and US crude stockpiles rose. An increase in output, combined with stockpiles rising, was a big factor for me remaining short on the asset.

This saw the price of oil trade from the highs of $64.90 down to the lows of $55.29 over the next 8 trading days.

But are things changing, or are we witnessing a short-term pullback?

On Monday, OPEC+ announced that they would be increasing production to the tune of 411 thousand barrels per day in June. Yet the price closed back above the 50% of the candle range. Not only that, the price rejected the key zone of support.

Since the announcement, the price has continued to trade higher, now breaking above the bearish price action from Monday. Seems a bit suspicious to me when negative data leads to a reversal in price.

But was this output priced in? Looking back at the chart, we can see that the 23rd April was the announcement of potential further oil output in June, and the 3rd May headlines just confirmed that.

On the other hand, we can see that large speculators, commercial entities, and non-reportables all reach varying extremes on the commodity.

The large speculators are extremely short, at levels similar to those of the recent rally in early April. Commercials have also reached an extreme on the long side, again at levels similar to April. Finally, non-reportables, the guys that usually get it wrong, have an extreme short position view too.

This means that my sentiment indicator is really pointing towards a market that is at an extreme. We may not know how aggressive this extreme will be in terms of a turnaround, but this reversal to the negative data makes me think there could be some room to run.

CNBC reported:

Oil prices in April posted the biggest monthly loss since 2021, as U.S. President Trump’s higher tariffs have raised fears of a recession that would slow demand for oil at the same time that OPEC+ is quickly increasing supply.

“Our key conviction remains that high spare capacity and high recession risk skew the risks to oil prices to the downside despite relatively tight spot fundamentals,” Daan Struyven, Goldman’s head of oil research, told clients in a report on Sunday. The investment bank has cut its forecast for U.S. crude prices this year by $3 to $56 per barrel.

Price action needs to do more before convincing me that a reversal is truly on the cards. I am watching the 4-hour chart intently, as the price seems to be forming a range bouncing from the highs of $59.67 and the lows of $56.00. A break above the highs would signal to me that we could see a short-term rally from the liquid gold.

If the rally fails to form, then it seems that the bears will remain in control for now, and that would likely see sentiment CoT extremes climb higher.

Good luck out there, traders. Speak soon.