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Oil Price Fundamental Daily Forecast – Firming on Middle East Concerns, Capped by Rising U.S. Production

By:
James Hyerczyk
Published: Apr 17, 2018, 08:24 UTC

The current rally is being driven by speculators who have been willing to buy strength. The more prudent hedge fund money managers tend to buy weakness. So if the specs decide to book profits then prices may fall to levels more attractive to the professionals.

Crude Oil

U.S. West Texas Intermediate and international-benchmark Brent crude oil futures are trading higher Tuesday, but the early strength is fading a little as we approach the regular session opening.

At 0757 GMT, June WTI crude oil futures are trading $66.30, up $0.10 or +0.15% and June Brent crude oil is at $71.45, up $0.03 or +0.04%.

WTI Crude Oil
Daily June West Texas Intermediate Crude Oil

Traders said the early strength is being fueled by concerns over possible disruptions in supply. A possible high risk situation is developing with potentially spreading conflicts taking place in Syria and Arabia, renewed sanctions against Iran and falling output as a result of political and economic crisis in Venezuela.

Possibly putting a lid on the rally are concerns over rising U.S. production. Crude production has soared by almost a quarter since mid-2016 to 10.53 million barrels per day (bpd), largely thanks to a booming shale industry.

Higher prices have definitely drawn the attention of the U.S. producers with them taking advantage of the rally this year by steadily increasing rig counts. According to the weekly reports from energy services firm Baker Hughes, U.S. producers have added about 73 rotary rigs since January 2018.

Brent Crude
Daily June Brent Crude

Forecast

Despite the early strength, prices could retreat on Tuesday due to yesterday’s potentially bearish technical chart pattern. If traders despite to go after yesterday’s lows and they fail, sell stops could trigger an extension of the move.

Any weakness should not be judged as a sign that the trend is changing, but rather that the market is overbought and needed to alleviate some of the upside pressure in order to attract new buyers. Therefore, we expect prices to remain bid especially due to the lingering problems in the Middle East. The Iran nuclear deal deadline is May 12 and there aren’t any peace talks going on over Syria, so potentially bullish factors are likely to be around for nearly a month.

The current rally is being driven by speculators who have been willing to buy strength. The more prudent hedge fund money managers tend to buy weakness. So if the specs decide to book profits then prices may fall to levels more attractive to the professionals.

Later today, the American Petroleum Institute (API) is due to publish weekly U.S. inventories figures with the U.S. Energy Information Administration to follow suit on Wednesday. In the absence of any fresh developments out of the Middle East, these reports should be market moving events.

About the Author

James is a Florida-based technical analyst, market researcher, educator and trader with 35+ years of experience. He is an expert in the area of patterns, price and time analysis as it applies to futures, Forex, and stocks.

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