Oil Price Fundamental Daily Forecast – Hedge Funds May Be Waiting for Correction into Support

U.S. West Texas Intermediate and international-benchmark Brent crude oil futures are under pressure early Monday as another rise in the U.S. rig count likely means American production will continue to increase, dampening OPEC-led attempts to trim supply and stabilize prices.

At 0716 GMT, June WTI crude oil futures are trading $68.14, down $0.26 or -0.38% and June Brent crude oil futures are at $73.80, down $0.26 or -0.35%.

On Friday, General Electric’s Baker Hughes energy service firm reported that U.S. drillers added five oil rigs drilling for new production in the week-ended April 20, bringing the total count to 820, its highest level since March 2015.

Forecast

After testing its highest level since late 2014 last week, crude oil futures could be ripe for a short-term setback if investors decide to focus on the rising rig count and the possibility of further increases in U.S. crude production.

A near-term correction won’t likely lead to a change in trend because the overall market remains well supported by the OPEC production cuts and strong demand from Asia. Furthermore, bullish traders expect a decision on the reimposition of sanctions on Iran, which could lead to supply disruptions. Sanctions against Russia and turmoil in Venezuela could also lead to a reduction in supply.

We’re going to maintain a long-term bullish outlook while looking for a short-term correction. This may be necessary to alleviate some of the upside pressure. At this time, it may be necessary to shake the tree a little and encourage some of the weaker longs to take profits.

The rally has to be supported by hedge funds and they may not be willing to buy strength at current price levels. They would, however, probably be very active on a pullback into support.