Oil Price Fundamental Daily Forecast – Bullish Traders Hoping for Deepened Production Cuts

U.S. West Texas Intermediate and international Brent crude oil futures worked their way higher on Monday, as confidence continued to build that OPEC and other top exporters would agree to extend production curbs at the cartel’s meeting on May 25 and speculation that this round of cuts could be deepened further.

July WTI crude oil settled the session at $51.13, up $0.46 or +0.91% and August Brent crude oil closed at $54.11, up $0.35 or +0.65%.

Prices have risen sharply since early last week to their highest levels since April 19, on expectations that a pledge by OPEC and other major producers, including Russia, to cut supplies by 1.8 million barrels were day (bpd) will be extended in December 2017 to March 2018.

Last week, Saudi Arabia agreed with Russia to extend production cuts to March 2018. Yesterday, Saudi Arabia and Iraq agreed on the need to extend a global cut in oil supply by nine months in an effort to trim the global supply glut and boost crude prices.

Forecast

Momentum has shifted to the upside, but the longer-term trend on the daily chart remains down. This suggests that the current rally is likely a combination of short-covering and aggressive, speculative buying.

The July WTI chart shows the main range is $54.45 to $44.13. Its 50% to 61.8% retracement zone is $49.29 to $50.51. Holding above this zone is helping to give the market an upside bias. Because of this, the zone should be considered support.

The August Brent crude oil range is $57.14 to $47.28. Its key support zone is $52.26 to $53.41.

At this time, the price action suggests that traders are betting the extension negotiations will go smoothly. This thought was also reiterated by the Saudis. On Monday, Saudi Energy Minister Khalid al-Falih said on Monday he did not expect any opposition with OPEC to extending oil output cuts for a further nine months. He told a news conference that a new oil output deal would be similar to the previous pact with minor changes.

OPEC Secretary-General Mohammed Barkindo also said on Monday that he saw a growing consensus among the group’s members as well as non-OPEC producers on the duration of an extension.

Bullish traders are likely more interested in whether there will be a possible deepening of the cuts.

We could see a slowdown in the rally as we approach the May 25 meeting date. After the meeting, we could see a price spike to the upside if the cuts are deepened. If the cuts are merely extended, I think investors will be largely disappointed. This could encourage profit-taking.