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Oil Monthly Forecast – February 2018

By:
Colin First
Published: Feb 4, 2018, 17:00 UTC

The oil prices continued to rise through the $60 region but we expect the prices to range in the month of February

Crude Oil

January was the month when the oil prices continued with their rise and broke through their medium term target of $60. But the rise through did not stop there and we saw the prices continue higher through the $65 region during the course of the month but what should concern the bulls is the fact that the oil prices closed off their highs and this is considered to be a sign of weakness. But whether that weakness translates into a strong period of correction is something that we have to wait and see in the coming month.

Oil Prices Continue Higher

The oil market has been in a huge bullish trend over the past several months on the back of full support from the OPEC and the non-OPEC oil producers. Their economies are highly dependent on the oil prices and with the falling oil prices during the middle of last year, they decided to finally act. But even after deciding to act, it was felt that they would not be able to agree on anything concrete due to their geopolitical differences but as the time wore on, the pressure exerted on their respective economies forced their hand and they were made to back down and agree to cooperate with each other to push the prices higher.

Oil Weekly
Oil Weekly

They decided that they would all work together to cut down the oil production as well as the supply, thus creating an artificial demand for oil in the market, which would in turn push up the prices. So, we had a situation where the demand continued to be normal but as the supply was reduced, there was an appearance of an extra demand for oil and this helped to push up the prices. Since that time, the oil prices have continued to move up in a large bull run with very little correction. The oil producers have also cooperated well with each other, in this aspect, by continuing the production cut.

There were periods when the oil inventory from the US and other regions tended to pick up as those producers who were not part of the deal, refused to cooperate but as the weeks rolled by, the inventory data also showed signs of weakness and this helped to further fuel the bull run in the oil prices. So, from the lows in the middle of the 40s region, we have seen the oil prices rise through the 50s region and finally crack the $60 mark and proceed further. But towards the end of the month, we did see some weakness in the oil prices despite reports that the oil producers are likely to cut the production till the end of the year atleast. But as we entered the end of the month, we saw the dollar beginning to gain in strength and this affected the oil prices which wavered and chopped around the $65 region.

Prices Likely to Range

The coming month is going to be quite interesting as we believe that the dollar would continue its rebound in the new month of February. The dollar is likely to become the focus in the next couple of months and we are also looking at a rate hike from the Fed in the month of March. Under these circumstances, it is quite likely that the oil prices might also get impacted due to the strength of the dollar and we might see signs of weakness. There is also the likelihood that many oil traders might also start contemplating taking profit at these levels and we should see some choppiness during the first half of the month. Also, this region is also likely to be the price region where the oil producers should be making enough to sustain their economy and hence they may not feel the need to push the prices even higher.

So, we could see some trouble and consolidation in the oil market in the coming month. We are quite convinced that the oil prices would continue to consolidate and range between the $60 and $70 for much of the coming month as that is likely to be the price region which the producers, buyers and the sellers in the oil market seem to be comfortable with.

About the Author

Colin specializes in developing trading strategies and analyze financial instruments both technically and fundamentally. Colin holds a Bachelor of Engineering From Milwaukee University.

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