Oil Monthly Forecast – September 2017

Oil prices had a tight month of trading in August as all the attention and focus were on the euro, dollar and gold. The oil prices spent most of the month in a consolidation and ranging mode as a result of which the total range of the oil prices for the month was less than $5. Though there were a lot of events that would have affected the oil prices under normal circumstances, the oil market chose to ignore most of those events and spent the month trading in a slow and steady manner.

Oil Prices Consolidate

It is also probably due to the reason that the major oil producers seem to be happy and content with the price range that the oil is in and they do not find any major reason to interfere in the oil market at this point of time. Another reason could be the fact that the month of August is generally a period of holiday for many parts of the world and hence the traders were not on their desks which could have led to the low volatility and liquidity in the oil prices. They were steady for most of the month providing very little opportunity for the traders who wanted to invest for the long term in this instrument.

We did see a small period of volatility which carried the oil prices below the $46 mark for a brief while as the hurricane in the US threatened to disrupt the demand. The hurricane in Houston towards the end of the month, had led to the close down of a large number of refineries and this in turn led to a decrease in the demand for crude oil. With the demand dipping and the supply continuing to remain the same, it was only a matter of time before the prices fell and this happened towards the end of the month.

Oil Prices Likely to Move Higher

Looking ahead to the month of September, as we have been saying in many of our forecasts, the dip in demand due to the shutting down of refineries is likely to be only temporary. Once the hurricane and the subsequent flooding and rain go away, it is only a matter of time before the refineries are back online and when this happens, the demand for crude oil is bound to pick up. Also, over the last month or so, in the absence of intervention from the OPEC members and due to the lack of major fundamental changes, the oil prices have been left to the mercy of the incoming data.

That incoming data has been getting progressively better for the oil market as the inventory data from the US has been showing a steady increase in the draw which means that the oil inventory in the US is depleting fast and this would force them to buy more and more crude oil in order to augment their inventory. On the other hand, the oil production has been at steadily constant levels and this has helped to keep the oil prices buoyant. Thus the incoming data combination of a steady production and declining inventory is likely to lend some support to the oil prices for the short and medium term and we continue to believe in the bullish trend in the oil prices.

Technically, we see some support coming in for the oil prices just around the $45 region and for all practical purposes, we believe that this support region is likely to hold any correction of the uptrend for now. With the base set in that region and with the way that the oil prices have recovered towards the end of the month, we can safely say that the uptrend is still intact. This should help to carry the oil prices back towards the $50 region where it is likely to face a lot of resistance in the short term. This was the region where the oil bulls failed last month and so the selling can be expected to continue to be stronger in this region when the prices arrive there the next time. There does not seem to be any fundamental drivers for the oil prices in the short term and hence the oil bulls have to do all on their own.

A break through the $50 region is then likely to target the region between $53 and $55 which is likely to prove to be a even more difficult one to crack. But with the fundamentals yet to shake up the markets too much and with the trend also pointing higher, we would stick to our stand that the uptrend is still intact.