Oil Price Fundamental Daily Forecast – Direction is in Hands of Hedge Funds

U.S. West Texas Intermediate and international-benchmark Brent crude oil closed higher on Wednesday despite a bigger than expected inventories build. Traders said that OPEC’s strong compliance with its plan to cut output offset news that U.S. production topped 10 million barrels per day for the first time in nearly half a century.

March U.S. WTI crude oil futures settled at $64.73, up $0.23 or +0.36% and April Brent crude oil finished the session at $68.89, up $0.37 or +0.54%.

The U.S. Energy Information Administration said on Wednesday that U.S. crude inventories rose by 6.8 million barrels during the week-ending January 26, after 10 straight weeks of declines. Analysts had expected a decrease of 126,000 barrels.

Gasoline stocks unexpectedly fell by 2 million barrels, compared with expectations for a gain of 1.8 million barrels, helping to drive up gasoline futures.

Distillate stockpiles fell by 1.9 million barrels, versus expectations for a 1.5 million-barrel drop, the EIA data showed.

Forecast

The EIA also reported on Wednesday that U.S. crude oil production in November surpassed 10 million barrels per day for the first time since 1970, and neared the all-time output record. However, this news wasn’t enough to deter buyers because it was reported that adherence to the program to limit production rose to 138 percent from 137 percent in December, suggesting commitment is not wavering even as oil prices hit their highest level since 2014.

The fundamental seem to be indicating we’ve reached a stalemate in the crude oil market. This tells me that the price action will be controlled by the hedge funds. They have to continue to be willing to buy strength to sustain the rally, or prices will collapse into a value zone.

At this time, the key level on the WTI chart is $64.11. This is the contract’s 50% price or pivot. This price is controlling the direction of the market. A sustained move above this level will indicate that buyers are still coming in to support the market. A sustained move under this level will mean that the hedge funds are taking profits and probably playing for a pullback into a value area.

If $64.11 fails as support we’re likely to pullback into at least $61.37. Since the long-term fundamentals are bullish, buyers are likely to show up on a test of this level.

Brent crude changed its trend to down on Tuesday, but there was very little follow-through to the downside. The key short-term level to watch today is $69.28. If sellers show up on a test of this level then we’re probably going to head lower over the near-term.

If there is an eventual follow-through to the downside then we could see a move into $66.03 to $64.91.