Oil Price Fundamental Daily Forecast – Shift in Supply/Demand Situation Could Lead to Major Hedge Fund Liquidation

U.S. West Texas Intermediate and international-benchmark Brent crude oil futures are trading slightly higher in limited action early Friday. The price action is likely being fueled by a weaker U.S. Dollar, but gains are being limited by weaker U.S. equity markets.

At 0716 GMT, May WTI crude oil is trading $61.32, up $0.07 or +0.11% and June Brent crude oil is at $64.99, up $0.04 or +0.06%.

Despite today’s early strength and yesterday’s strong rebound rally, both futures contracts are poised to close lower for the week. The catalysts behind the selling pressure this week has been concerns over rising supply from the U.S. and other nations threatening to undermine efforts by OPEC and other producers to limit production, tighten the global supply and stabilize prices.

Forecast

The major theme this week has been the potential for rising supply to overwhelm the expected gains in crude demand for 2018. This notion was supported on Thursday by a report from the International Energy Agency (IEA) which said global oil supply increased in February by 700,000 barrels per day (bpd) from a year ago to 97.9 million barrels per day.

The IEA also said supply from producers outside of OPEC, led by the U.S., will grow by 1.8 million bpd this year versus an increase of 760,000 bpd last year. This supply increase is more than the IEA’s expected demand growth forecast for this year of 1.5 million bpd.

Furthermore, the IEA said that commercial oil inventories in industrialized nations rose in January for the first time in seven months. Although this hardly suggests the trend is turning in favor of rising inventories, it does seem to indicate the downslide momentum generated by OPEC and Russia to cut supply may be coming to an end.

Both WTI and Brent crude oil are trading inside major triangle chart patterns on the daily chart and on the weak side of a major 50% to 61.8% retracement zone. This indicates that a slight bias is developing to the downside. However, it also indicates impending volatility. This likely means that we are going to see a major move to the downside within the next 5 to 7 days. The longer the markets stay inside the triangle and under the retracement zones, the bigger the expected break. This will likely be triggered by aggressive hedge fund liquidation.