Oil Price Fundamental Daily Forecast – Hedge Fund Selling Will Alleviate Upside Pressure

U.S. West Texas Intermediate and international-benchmark Brent crude oil funds are trading lower early Friday amid concerns over rising U.S. production. However, losses are being tempered by another decline in U.S. crude inventories.

At 0848 GMT, March WTI Crude Oil futures are trading $63.25, down $0.65 or -1.00% and April Brent Crude Oil futures are at $68.21, down $0.71 or -1.03%.

According to the U.S. Energy Information Administration, U.S. crude production rose to 9.75 million barrels per day (bpd), up from 9.49 the previous week. This puts production back on the path towards 10 million barrels which it should reach soon.

In other news, U.S. crude inventories fell 6.9 million barrels in the week to January 12, to 412.65 million barrels. That’s their lowest seasonal level in three years and below the five-year average marker around 420 million barrels.

Forecast

The current weakness is not unexpected. The market started to look saturated with hedge fund longs about a week ago. The anticipated correction is not expected to be a trend changing event, but something that may be necessary to alleviate some of the upside pressure and to prevent the market from overheating.

After a more than month-long rally, the hedge funds are likely to start lightening up on the long side. They have two objectives. One, they want to book cash and invest in other opportunities, and two, they would like to see prices fall to more favorable price levels so they can re-enter on the long side.

Over the long-run, prices look well-supported because the OPEC production cuts are working to drive done global supplies. We’re just looking for a short-term price adjustment.

The best value zone for WTI crude oil is $60.41 to $59.38. Brent crude’s target is $65.52 to $64.53.