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Oil Fundamental Forecast – April 28, 2017

By:
James Hyerczyk
Published: Apr 28, 2017, 05:32 UTC

U.S. West Texas Intermediate crude oil fell to its lowest level since March 27 on Thursday, pulled down by falling gasoline prices and a stronger U.S.

Crude Oil

U.S. West Texas Intermediate crude oil fell to its lowest level since March 27 on Thursday, pulled down by falling gasoline prices and a stronger U.S. Dollar. Sellers continued to react to the report from the U.S. Energy Information Administration on Wednesday that showed a sharp rise in gasoline inventories as refiners pumped a record amount of crude into facilities the week-ending April 21. Traders are also saying that weak demand is behind the rise in gasoline inventories.

June West Texas Intermediate crude oil finished the session at $48.97, down $0.65 or -1.31%. July Brent crude oil closed at $51.82, down $0.59 or -1.13%.

Brent Crude
Daily July Brent Crude

Also pressuring prices was the news that Libya had restarted two of its main oil fields after protests subsided.

Crude oil was also pressured by a stronger U.S. Dollar. The Greenback rose after the European Central Bank left interest rates at zero percent. A stronger dollar makes dollar-denominated commodities like crude oil more expensive for foreign traders, lowering demand.

The lingering problem for crude oil is the global supply glut. The short-term issue is rising gasoline inventories.

Traders had been looking for gasoline inventories to tighten heading into the peak summer driving season, but surprisingly, this has happened this year.

WTI Crude Oil
Daily June West Texas Intermediate Crude Oil

Forecast

Outside of the occasional short-covering rally due to surprise news or oversold technical conditions, it looks as if crude oil prices are headed lower, primarily driven by rising U.S. production and gasoline inventories.

If U.S. production continues to rise while gasoline demand falls, support for crude oil could continue to erode.

Early Friday, June WTI crude oil was stabilizing slightly above the March bottom at $47.58. Traders cited reports that OPEC was actively seeking a deal that would ensure a drawdown of excess fuel supplies.

The momentum is clearly to the downside, but in order to turn this market decisively higher, OPEC and other non-OPEC members are going to have to convince traders that an extension of its program to cut production will do the trick. However, the cartel is not set to meet until May 25 so until then prices could remain under pressure.

Actually, an extension is probably not going to be enough to stop the price slide. This time it’s going to take a surge in gasoline demand and a weaker U.S. Dollar to push prices higher over the near-term and a drop in U.S. production to support prices over the long-term.

About the Author

James is a Florida-based technical analyst, market researcher, educator and trader with 35+ years of experience. He is an expert in the area of patterns, price and time analysis as it applies to futures, Forex, and stocks.

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