Oil Price Fundamental Daily Forecast – Brent Crude Oil Hits New 2017 High

U.S. West Texas Intermediate and internationally-favored Brent crude oil surged on Monday with Brent hitting a new 2017 high. Prices continued to be supported by expectations of greater demand due to forecasts from OPEC and the International Energy Administration.

Additionally, buyers are even more optimistic that higher prices will encourage OPEC and other major non-OPEC producers to extend their current production cuts to perhaps the end of 2018.

November WTI crude oil settled $52.22, up $1.56 or +3.08% and December Brent crude oil closed the session at $58.43, up $2.01 or $3.56%.

Hedge fund buying is also driving up prices. Recently, the WTI futures contract had been straddling the $50.30 level. We thought this was the level controlling the market and pointed out that a sustained move over this level would indicate that the funds are buying strength and that a break under this level would indicate they are more interested in buying a pullback into support.

Current data supports the notion that the hedge funds have been fairly aggressive lately. According to the U.S. Commodity Futures Trading Commission, hedge funds raised their bullish bets on U.S. crude oil futures to the highest level in four weeks. Additionally, they also reduced short positions for a third straight week through September 19.

Forecast

The current price action suggests that the argument for a bear market is being blown up by the aggressive buying. While there has been a wave of aggressive buying lately by new longs, there has also been a tremendous rush of short-covering.

Caught on the wrong side of the rally are bearish traders who believed U.S. drillers would just ramp up production once prices rose over $50.00, but that is not likely to be the case. Remember that several months ago, drillers announced cutbacks in capital spending. Additionally, the number of oil rigs operating in U.S. fields has plateaued recently. Therefore, it is possible that U.S. production may even drop in the next few months, adding further fuel to the rally.

Despite the bullish conditions, investors have to be careful as the market approaches previous highs like the WTI May 25 top at $52.62 and as Brent crude nears $60 a barrel because some producers may be tempted to ramp up production above agreed upon levels.

Additionally, remember that the hedge funds tend to get ahead of the fundamentals so it is possible they could overbuy, stopping the rally.