Oil Price Fundamental Daily Forecast – Fresh Speculator Cash Supporting Rally

U.S. West Texas Intermediate and international-benchmark Brent crude oil finished higher on Monday, but inside a tight range on low volume. Despite the muted price action, crude oil remained near a 2 1/2 –year high. Underpinning the market was renewed speculative bets on further strength amid the OPEC-led production cuts and a decline in U.S. drilling activity.

February WTI crude oil settled at $61.73, up $0.29 or +0.47% and March Brent crude oil closed at $67.78, up $0.16 or +0.24%.

Speculators continue to pour money into the crude oil market as they increase bets the OPEC-led production cuts will offset expectations of rising production in the U.S. The production cuts have been helping to trim the global production while stabilizing prices.

According to exchange data, speculators continued to increase their net long positions in ICE Brent. Buyers increased their positions by 4,175 lots to leave them with a record net long of 565,459 contracts.

Last week, the number of rigs drilling for oil fell by 5 to 742, according to oil services firm Baker Hughes. Although U.S. crude oil production is expected to break through 10 million barrels per day (bpd) soon, the price action suggests that investors believe the system is, once again, becoming even more efficient.

Forecast

Crude oil prices are trading higher early Tuesday. The market is being driven by strong technical momentum. This means, investors are too worried about the price level. It also means that big money is supporting the rally. Therefore, we have to conclude that the rally will continue until the money faucet is turned off.

It is possible that crude oil can become overbought, but we haven’t seen any evidence of that yet. At this point, it may take an unexpected event or surprise profit-taking by a hedge fund to put in a top.

At 0808, February WTI crude oil is trading $62.09, up $0.36 or +0.58% and March Brent crude oil is at $68.04, up $0.26 or +0.38%.