Crude oil price has demonstrated a strong rally over the past 5-months. On Thursday, crude oil WTI futures jumped above USD 66 per barrel for the first time in more than three years. The rally in crude oil prices was supported by OPEC’s extension of production cut, strong demand and continuous drop in the US stockpiles of crude oil.
FiND, an alternative data platform developed by Heckyl showed the demand for crude oil has been outstripping supply consistently since February last year (Image 1).
[Image 1: Crude Oil Supply-Demand Balance]
At the same time, the US crude oil inventories have been witnessing downtrend for the past 10-months (Image 2).
[Image 2: US Crude Oil Inventory]
FiND Positive to Negative News Ratio showed strong bullish sentiment for crude oil prices. Heckyl has developed Positive to Negative News Ratio to capture media sentiment around crude oil prices.
Our back-testing has indicated a strong positive correlation (+0.91), implying that the FiND Positive to Negative News Ratio (90-DMA) is an alternative proxy for crude oil prices.
FiND Positive to Negative News Ratio issues bullish/bearish signals based on the crossover of shorter-term (90-days) and longer-term (180-days) moving averages of the daily values of the ratio.
During the first week of September 2017, FiND Positive to Negative News Ratio issued bullish signal after the shorter term (90-days) moving average of the ratio moved above the longer term (180-days) moving average. Since then, FiND Positive to Negative News Ratio is in bullish territory. During this bullish phase, the price of crude oil surged nearly 40%.
[Image 3: Crude oil WTI futures v/s FiND Positive to Negative News Ratio]
In our view, extremely bullish news sentiment for crude oil coupled with strong demand trends and falling US inventories augur well for the price rally.
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