Oil Fundamental Forecast – February 28, 2017

U.S. crude oil futures inched higher on Monday as investors continued to react to higher than expected compliance with OPEC’s plan to cut production, trim the global surplus and stabilize prices. However, gains were limited as investors continue to be affected by rising U.S. production.

April West Texas Intermediate crude oil closed at $54.05, up $0.06 or +0.11%. International May Brent crude oil finished the session at $56.42, up $0.11 or +0.20%.

Buyers continue to support the market on the notion that compliance with the OPEC deal will continue to improve. They are also putting their money where their mouth is hedge and commodity funds holding record long positions. They may be betting that the amount of production slashed could grow even more over the near-term if the United Arab Emirates and Iraq catch up quickly to the levels that they promised to cut back in December.

Russia is another wildcard. If it decides to cut the amount it pledge, crude oil could surge to the upside.

Forecast

We could see volatility later this week after Reuters releases a survey that will show compliance levels for February.

Additionally, passive investment funds are poised to shift an estimated $2 billion from far-term to near-term crude futures over the next week. This move is designed to catch an energy rally as the OPEC production cuts continue to eat into supply.

While buyers continue to bet on supply being reduced, they can’t do anything about U.S. oil companies filling in where OPEC is cutting. This is helping to limit gains. In reaction to OPEC cutting production, U.S. companies have stepped up production, coming in over 9 million barrels per day during the week-ended February 17 for the first time since April 2016.

April WTI crude oil traders should continue to monitor the price action and order flow at $54.39. Trader reaction to this level will tell us if the buyers or sellers are in control.