Oil Price Fundamental Daily Forecast – Buyers are Scarce as Fundamentals Turn Bearish Along With Hedge Funds

U.S. West Texas Intermediate and international-benchmark Brent Crude Oil futures are trading lower early Thursday. U.S. crude hit its lowest level since August 22 earlier in the week, while Brent traded near its bottom reached on September 6. Both futures contracts are under pressure this week due to sharp sell-offs in the global equity markets. Hedge funds are being forced to meet margin calls, selling crude contracts to raise the cash. This is contributing to crude oil’s weakness.

At 0722 GMT, December WTI crude oil is trading $66.36, down $0.46 or -0.69% and January Brent crude oil is at $75.67, down $0.50 or -0.66%.

Bearish traders are equating the weakness in the stock market to a weakening in the global economy which could lead to lower demand. WTI crude oil is down nearly 10 percent in October, and Brent is off nearly 9 percent.

It’s hard to believe any of the reports from the crude oil analysts. Just weeks ago, the major analytical firms posted predictions of $100 per barrel crude oil based on uncertainty over the amount of crude that would be removed from supply once the Iran sanctions start on November 4.

While that was going on, Saudi Arabia and Russia said they stand ready to produce enough to prevent a short-fall. This news was enough to put in a top, however, it was the unexpected sell-off in the equity markets that actually broke the back of the crude oil market.

Crude oil is rapidly approaching prices hit on August 6 when President Trump announced the sanctions against Iran. This tells me that the market feels that there will be no short-fall. Either that or we’ve all been duped by the headlines calling for a crude oil shortage.

On top of that, U.S. commercial crude oil stockpiles rose for a fifth consecutive week last week, increasing by 6.3 million barrels to 422.79 million barrels, the Energy Information Administration said on Wednesday.

Forecast

Momentum is down and the fundamentals are bearish. Stock market volatility has forced crude oil buyers to take a cautious approach. The price action and the government trading numbers indicate the hedge funds have raised the number of short-positions.

Playing the long side is dangerous at this time due to a number of uncertainties. I don’t expect to see a quick turnaround either. If short sellers are running the show then they will have to be taken out before the buyers reappear.