"Oil Hits The Floor And Is Now Set To Soar": Citi

Tyler Durden's picture

One day after Goldman issued a confused, rambling note in which the bank cuts its 3-month WTI price target by $7.50 from $55 to $47.50 saying "Spot WTI oil prices at $43/bbl are now back to November pre-OPEC deal levels, down from $52/bbl just a month ago and vs. our prior 3-mo $55/bbl forecast. How did it go so wrong?" yet kept a bullish long-term outlook (underscored by a bullish follow up note by Goldman's commodity head, Jeffrey Currie because Goldman is always hedged) and on the same day that Socgen likewise cut its Q3 and Q4 Brent forecasts by $7.50 to $50 and $52.50 (and 2018 by $6 to $54) on a weaker supply-demand outlook, oil bulls were in urgent need of reassurance.

So, courtesy of Citi, the one bank that will never stray too far from its bullish bets on crude (perhaps due to its role as OPEC's impresario to the hedge fund world), and its head technician Tom Fitzpatrick, here is the explanation why oil is now due for a rebound, or as Citi puts it... 

"Oil hits the floor and is now set to soar!"

  • We believe that WTI Crude has posted a short term bottom. Previous short term bottoms have typically seen strong upside follow through with an average low to high rally of 22% over three weeks. 
  • The present price action on WTI Crude is also very similar to that seen in October/November of last year and in that instance, we saw a rally of nearly 23% in the 3 weeks after the low was posted. 

  • We are very focused on the price action seen in October and November of last year where we fell for 5 weeks from a high of $51.93 to a low of $42.20. This time, we also fell for 5 weeks from a high of $52.00 and hit a low of $42.05 last week.
  • The bounce after the November low saw WTI rally to $51.80 over three weeks and a similar move this time around looks likely to us. Such a move would also be consistent with the rebounds off prior lows.
  • Previous short term bottoms in WTI Crude have been followed by aggressive rebounds in the 3 weeks that follow. On average these rebounds have resulted in a move higher by 22%. If last week’s low is a short term bottom (which is our bias), a bounce like the average one see over the last 18 months would suggest a move up to $51.29, in line with what we would expect to see if we follow the November 2016 bounce highlighted above.

  • Daily momentum has crossed higher from stretched levels and similar turns higher in momentum have corresponded with major bottoms in WTI Crude.
  • In addition, we have now firmly taken out good short term resistance at $43.76 (May low) on a closing basis and we held that level on a retest yesterday.
  • Interim resistance worth keeping an eye on in the short-term comes in around the March lows of $47.

  • It is worth noting that net Managed Money positioning has become significantly cleaner in the last few months and a large increase in shorts has actually been seen (biggest short since the deflation story dominated the narrative in mid-2016)
  • Further price appreciation in Crude could therefore see an unwind of shorts with plenty of room for longs to add to positions.

Then again, considering that exactly one week ago Citi issued a note titled "Here Comes The V-Shaped Rebound In Oil", we can see why readers may be skeptical.

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order66's picture

"Set to soar" based on what exactly? Sub $40 before $50.

strannick's picture

Translation: We're seriously underwater on our shale loans. Please catch our falling knife

playit's picture

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WTFRLY's picture

They are taking a page from Goldman's book, this is just a head fake for lower

medium giraffe's picture

'Set To Soar'

 

"here, hold this"

medium giraffe's picture

hey, that's not your finger, the fuck is wrong with you man?

Francis Marx's picture

If eveyone who pumps oil keeps selling at 45 on the futures, I dont see citi's wisdom here. The demand is too low. Even at peak this time of the year we are at lows.

If you look at oil on the daily, its been arcing over. Sign of further lows or a waterfall.

cognitive dissident's picture

Better pump those brakes instead of that growing glut of black gold shittygroup, that is one nasty down channel it remains in...

buzzsaw99's picture

around here the waste water trucks are rolling day and night.  nobody is cutting back on production.  i wish oil would soar but highly dubious.

medium giraffe's picture

Exactly, we're drowning in the bloody stuff, how and when does the price go up? 

"It's a trap!"

/Ackbar

GatorMcClusky's picture

For fun, go to Google earth and zoom in to Moulton, TX. You will see some tan squares around the town in all directions. Those are oil wells. You can follow them all the way to South Texas along the EagleFord. The number of well pads is staggering.

mo mule's picture

No I don't believe it.  We should hit 37 on WTI before there is any short term bottom.  imho, lol....

south40_dreams's picture

I'm looking forward to the howling when oil goes into the twenties

Turin Turambar's picture

Time to load up the truck with money and short the crap out of oil... well, unless you're like me and have loaded up with FB puts!  Grrrr, I knew I should've put some money in NFLX puts!!!!

 

The Bell Rang's picture

Try $ 32.00......................

aloha_snakbar's picture

LOL...I have covfefe'd with Gartman, and we can conclusively state that oil is set to soar, if not...it may plummet...you heard it here first...

UndroppedClanger's picture

Ah, I remember the days when I could still covfefe... then I took an arrow to the knee.

Full Court Lugenpresse's picture

Hear that, oil drillers? The bottom is in, pump like mad!

Catahoula's picture

Uh huh yea right. Citi lolololokolilolol

Sonny Brakes's picture

My observation is that the price at the pump hasn't fallen as far as the price of the WTI. I suspect that the reason for this is that even though consumption has fallen the retailers' cost of doing business hasn't and so they're forced to keep their retail pump prices high.

The rich would have you believe that it is they who subsidize the cost of good and services, but I don't think so.

Can I get a witness?

just the tip's picture

My observation is that the price at the pump hasn't fallen as far as the price of the WTI.

translation

apply vaseline liberally.

KimAsa's picture

Haha funny. Let it "soar", after that it'll sore- a little thing called demand destruction. There is no way oil will sustain above $50 bpd. Good luck, longs. You're gonna need it.

Got bike?

Glyndwr will return's picture

Oil at the mid 40s means exploration drops off a cliff which means an inevitable price hike down the road which means shale might even be profitable at ZIRP. But if interest rates actually rise to historic levels shale needs an even higher oil price. Not sure most economies will be surviving such a price without recession . Shale barely broke even at $110 a barrel and ZIRP

FringeImaginigs's picture

"Oil hits the floor"  You gotta be amused. That was eight days ago not today. Oil has been moving up since then. But thanks for the retrospective. I'm going to try and place a 6/21/17 buy order see if it gets accepted. 

Silver Savior's picture

It occours to me through common sense that inflation will continue to be ugly in real terms and no matter the supply of oil the price will keep going up from here. But I can't invest in oil because there are no oil bars to buy. 

NoWayJose's picture

I have silver and gold phyzz - and I bought Schlumberger (SLB) last week. Almost guaranteed it will reach $70 or higher again.

Eagle40's picture

Hey Silver whoever,

You can buy oil in the can!!!! Get it lol...

Looks like some of those Democraps you support will be going to jail. One question....If your girlfriend Shillary the witch is behind bars are you going to have conjugal visits with her. Hmmm hmmm. 

Boy that's an ugly site for sore eyes. 

Silver Savior's picture

Do you realize if Hillary was in office this country would have been a lot better off? 

GIVJetMech's picture

You MUST be a millennial! And you CAN'T be serious. If Crooked Hillary had been elected, she would've simply led us FARTHER down the socialist path the Obama had us firmly on.

Trump may be a political neophyte and way out there, but he has the right ideas for this country. Stronger borders, illegal CRIMINAL immigrants deported, gang members (like MS-13) deported, better trade deals, less government in our lives, stronger international stance, better deals for our corporations (lower corporate taxes),

HRC wanted to let in FOUR TIMES the immigrants that are allowed now! Wake up! Look at Europe and the problems they are having. We DON't want that trype of problem here.

4 or 8 years of HRC and more Obama-like policies would certainly have destroyed this country. If you can't see that, you're blind.

NoWayJose's picture

De-mand, De-Shmand. Production, Pro-smucktion. All those made of figures to support shorting oil can just as easily be turned around 'made up' to support any story they want.

Why are gas prices still up? The people in that supply chain know that any drop is temporary. But the up elevator is not happening until big money pushes that button!

mo mule's picture

We had Cindy slow down oil unloading at the gulf. Now next weeks report will show they ramped up and unloaded allot. Plus with the gasoline build we have now, there should be a big build in crude.  Long term charts still show's 14 WTI for the low, maybe at 37 it will bounce, but unless we have a real war, Gog Magog, this summer and that is looking like what's about to happen in August, then who know's after that? If that happens will there still be any markets at all?

Youri Carma's picture

I don't think so, oil will stay in the doldrums.