Oil Price Fundamental Daily Forecast – Jump in Rig Count, U.S. Production – Key Market Drivers This Week

U.S. West Texas Intermediate and international-benchmark Brent crude oil futures are trading slightly better early Monday in a lackluster trade. It’s a bank holiday in the U.S. which may mean today will be a low volume session.

At 0824 GMT, March WTI crude oil is trading $64.40, up $0.17 or +0.25% and April Brent crude oil is at $69.49, up $0.11 or +0.16%.

Last week’s report of a jump in U.S. drilling has been offset by optimism over the ongoing output cuts led by OPEC and Russia.

Crude oil has posted strong gains in 2018, driven by a combination of factors, these include a tightening supply/demand market, geopolitical risks and a weaker U.S. Dollar which may be driving up demand for the dollar-denominated commodity.

Speculative money coming into the market has also been supportive. Hedge fund activity has been very aggressive for about a month. Financial investors have raised their net long U.S. crude futures positions to a new record, the U.S. Commodity Futures Trading Commission (CFTC) said on Friday.

Technically, the market is being driven by strong upside momentum. This type of trading tends to end with a dramatic reversal. It’s often said that “nothing cures high prices, like high prices”. This rally will stop when the hedge funds decide they have had enough. As long as they are willing to buy new highs the rally will continue. When they start looking for value then prices will retreat into a support zone.

The latest factor that could get the ball rolling to the short side is the rig count. Last week, U.S. energy companies added 10 oil rigs in the week to January 12, taking the number to 752, energy servicing firm Baker Hughes said on Friday.

That was the biggest increase since June 2017. It is also proof that shale producers have the capability of reacting to rising price rather quickly.

Energy firms in Canada also increased the number of producing rigs. They doubled the number of rigs drilling for oil last week to 185, the highest level in 10 months.

Given the jump in the rig count, it may be just a matter of days before it starts to negatively affect the buying in crude oil. Perhaps this week’s American Petroleum Institute or U.S. Energy Information Administration’s weekly inventories report will trigger the start of the first meaningful sell-off this year.