Oil Fundamental Forecast – February 21, 2017

Crude oil prices rose on Monday under thin trading conditions due to a U.S. bank holiday. The move was supported by new data showing that hedge funds and commodity money managers continue to bet that OPEC will succeed at cutting daily output and at the same time begin trimming the global supply glut. This is taking place despite record crude and gasoline inventories in the U.S. and signs that production may continue to increase over the near-term.

U.S. West Texas Intermediate crude oil closed at $53.99, up $0.21 or +0.39%. International Brent crude oil finished the session at $56.17, up $0.36 or +0.65%.

Forecast

According to new data from the InterContinental Exchange (ICE) showed on Monday that speculators raised their bets on a rally in Brent oil prices to a record last week. This news supported U.S. data which showed net long U.S. crude oil futures and options positions in the week to February 14 were at a record.

The current sideways market action suggests that the hedge funds may be coming in on the dips in the market. There is no evidence that they are chasing the market higher.

Although the report of record longs may look bullish on paper, it may actually make the market vulnerable to sharp snapbacks in prices if buyers continue to back away from buying strength.

Traditionally, rising long positions indicate robust demand and higher prices, however, this has not been the case with this market. Holding back the market from breaking out to the upside are reports of U.S. crude oil and gasoline inventories at record highs last week as refineries cut output and gasoline demand softened, according to the U.S. Energy Information Administration.

With this in mind, we may continue to see sideways price action this week until Thursday when the EIA reports its official supply and demand data for the week-ending February 17.