Oil Monthly Forecast – January 2018

Oil prices had a tight period of trading during the month of December and in a way, it has to be said that this was something that was quite expected. We had been saying several months before, that the oil bulls and the oil producers would be looking at the $60 region as one of their targets and with that target getting closer during the month, we were seeing more and more of profit taking and this slowed down the progress of the move.

Oil Prices Move Steadily Higher

The oil prices have been on a bullish mode over the past 5-6 months and around the month of August of 2017, when the prices were around the $45 region, we had mentioned that the worst was over for the oil prices and that we should be looking higher as far as the oil market was concerned. We had also mentioned the $60 region as one of the medium term targets and since that time, we have been seeing the oil prices on a long term uptrend as it continued to move higher with very little drawdown.

It was helped on its way higher by the OPEC producers who, for once, managed to show some unity and ensured that they dried up the supply by putting a strong cap on their production. This led to a scarcity of supply and with the demand continuing to exist at the high levels, this led to a natural progression in the prices higher. In December, we saw the producers agreeing to continue the production cut till atleast the middle of 2018 and this helped to keep the uptrend burning and it looked as though it was only a matter of time before the target of $60 was achieved.

As we headed into the second half of the month, we saw a drying up of liquidity in the oil market as more and more traders began to go on leave on account of Christmas and the New Year. This only slowed down the progress and did nothing to reverse the move higher and as we headed towards the end of the month, we saw the oil prices hit $60 finally. The weak inventory data from the US also helped to push the prices higher during the month and we enter into the new year and the new month of January near the highs of its range.

Oil Prices Likely to be Buoyant

The fact that the prices managed to breach $60 in a comfortable manner should be a source of encouragement for the bulls as they enter into the new month. We expect the momentum in the oil prices to continue atleast for the first half of the new month. There has been no indication of any kind of reversal in the oil markets just yet and with no such signs, the only direction seems to be up as far as the oil prices are concerned. We expect the prices to head for $65 during the short term but any further moves higher would be highly dependent on the production and inventory data.

With the OPEC producers also extending their production cut deal, we should ideally expect the uptrend to continue in the oil prices till the production cut lasts but the oil prices also depend on the production from countries that are not part of this group. Such geopolitical pushes and pulls could lead to some imbalances which would in turn affect the oil prices in a negative manner. This is the risk of trading on one of the most important commodities in the world whose use is more of a necessity than a luxury.

All this points to an interesting month of trading ahead for the oil traders and technically also, we find some of the historically important levels coming in at the $62.5 region which should serve as a strong selling region. The traders would do well to take some profits off the table at this region and wait for a break of this region before jumping back in for a move towards the $70 region in due course of time.