The federal funds futures, traded on the Chicago Mercantile Exchange and commonly used to estimate the market’s views on the likelihood of changes in U.S. monetary policy, indicate 32.2% odds for a quarter-point rate hike and 67.8% odds for a half-point rate hike at the Fed's December FOMC meeting, according to data from the CME Group as of November 18.
As of November 10, there are 277,775 long positions of light sweet crude oil futures, traded on the New York Mercantile Exchange (NYSE) by managed money or hedge funds, a decrease of 4,187 long positions from the previous week, according to the Commitment of Traders (COT) data released by the Commodity Futures Trading Commission (CFTC) each Friday.
This is compared to about 139,178 short positions, an increase of 22,934 short positions from the previous week where light sweet crude oil contracts are traded in units of 1,000 barrels. Hedge funds have increased their net short positions by about 27,121 contracts, as they are betting that the crude oil price could go lower.
From our technical viewpoint, the crude oil price has been moving in a bearish lower low chart pattern since 2013, meaning every low (L) is lower than the previous low. In our opinion, the crude oil bottom may not be in sight until the lower low chart pattern is broken. A secondary bullish descending (DES) wedge chart pattern has also emerged, reflecting the large number of hedge fund long positions of light sweet crude oil futures on the NYSE. Technically, the descending wedge needs to be broken or else the downtrend will continue.
A near-term headline risk is the Governing Council of the European Central Bank (ECB) meeting in Frankfurt on December 3. The ECB could announce the expansion and extension its 1.1 trillion euro bond-buying program. The move could bump up the U.S. dollar against the euro and put even more selling pressure on crude prices.
Other events that could influence the price of crude oil are the U.S. nonfarm payrolls report for November to be released by the Labor Department and the meeting of the OPEC ministers in Vienna, both on December 4. The OPEC meeting could be a non-event, as Russia’s Energy Minister Alexander Novak told TASS that Moscow has not yet received an invitation to the OPEC meeting but is ready to take part in it.
The long-term risk is that the crude oil price runs into a symmetrical triangle (SYM TRI) chart pattern between $50.55 and $37.75 per barrel. If the crude price can’t break out of the symmetrical triangle pattern, the price could bounce up and down between the January 2002 trendline support (T/S) and the May 2010 trendline resistance (T/R) until 2017, with a potential price target of between $42 and $46 per barrel.