Oil Price Fundamental Daily Forecast – Dollar Rebound Could Put a Lid on Crude Oil Rally

U.S. West Texas Intermediate crude oil futures gave back earlier gains to finish lower on Thursday. Volatile swings in the U.S. Dollar weighed on crude oil prices after the WTI futures contract flirted with the $67.00 level and the Brent futures contract neared $71.00. Traders expressed concerns over high supply, rising U.S. production and worries over future demand.

March WTI crude oil settled at $65.51, down $0.10 or -0.15% and April Brent crude oil finished at $69.97, down $0.05 or -0.07%.

Forecast

For the second time in a little over a week, both WTI and Brent crude oil futures posted potentially bearish technical closing price reversal tops. This may be a sign that the selling is greater than the buying at current price levels or that the buying is not that strong.

A follow-through to the downside today or a break back below last week’s tops will be another sign of weakness, but the real selling won’t start unless last week’s lows are taken out. WTI will change trend to down on a move through $62.78 and Brent will change trend on a trade through $67.92.

Traders have gotten used to watching and reacting to the OPEC-led production cuts and the drawdowns in U.S. crude oil inventory, but a new factor may have entered the equation this week. This new factor is the U.S. Dollar.

Prices will receive support from a weaker dollar and meet resistance from a stronger dollar. The dollar was pressured this week by negative comments from Treasury Secretary Steven Mnuchin. His comments inadvertently underpinned crude oil prices. However, President Trump said he wanted a “stronger dollar”. This turned the dollar around on Thursday as well as crude oil prices.

I think the direction of the dollar will determine the direction of crude oil prices today. A move in the dollar to the upside has to be strong enough to shake up the hedge funds who are sitting in massive long crude oil positions in order to generate a steep break in crude oil.

Traders are also starting to worry about U.S. production as it climbs towards 10 million barrels per day. Therefore, today’s rig count will also take on greater emphasis. A steep increase in the rig count could also be bearish for crude oil prices.