Oil Price Fundamental Daily Forecast – Continues to be Driven by Speculative Buyers

U.S. West Texas Intermediate and international benchmark Brent crude oil rose to their highest levels since early 2015 on Thursday, on concern that the escalation of unrest in Iran will eventually have an effect on supply and another decline in U.S. inventories as refining activity hit a 12-year high.

On Thursday, February WTI crude oil settled at $62.01, up $0.38 or +0.62% and March Brent crude oil ended the session at $68.07, up $0.23 or +0.34%.

According to weekly government statistics, U.S. stocks fell more than expected, continuing a steady drawdown of supplies in the world’s largest oil consumer, though stocks of distillates and gasoline rose on heavy refining activity driven in part by year-end adjustments.

The U.S. Energy Information Administration reported that U.S. crude stocks fell by 7.4 million barrels in the last week of 2017, exceeding expectations, as refiners boosted activity to their highest rate since 2005.

Forecast

Crude oil is under a little pressure early Friday. At 0732 GMT, February WTI is trading $61.81, down $0.21 or -0.34% and March Brent is at $67.82, down $0.25 or -0.37%. Profit-taking and technically overbought conditions may be behind the early weakness.

Some traders may also be questioning the validity of the rally since the unrest in Iran is expected to have no impact on the OPEC member’s ability to produce oil. Furthermore, the North Sea Forties and the Libyan pipelines are back to carrying oil. Additionally, U.S. production will likely break though 10 million barrels per day.

Ignoring the potentially bearish fundamentals puts some speculative buyers in danger of getting caught in a bull trap when the market does turn down. Currently, it is being driven by aggressive hedge and commodity fund buying, however, they could dry up quickly and investors could start booking profits in an effort to drive the markets back to more justifiable price levels.