Oil Price Fundamental Daily Forecast – Look for Surprise in Rig Count Report

Profit-taking and bargain-hunting helped drive crude oil prices up from 10-month lows on Thursday. Aggressive counter-trend investors bought crude oil despite bearish market sentiment due to the persistent supply glut and doubts over the OPEC-led plan’s ability to balance the market.

U.S. West Texas Intermediate crude oil and internationally-favored crude oil are posting a further recovery on Friday, the markets are still in a position to close lower for the week and month while setting their worst first-half year decline in 20 years. This is taking place despite the OPEC-led plan to reduce output, trim the global supply glut and stabilize prices.

This week’s price action strongly suggests that traders remain skeptical of OPEC’s ability to balance supplies. While the plan to cut production by 1.8 million barrels per day (bpd) has been in place since January, not all OPEC and non-OPEC participants have fulfilled their pledges. Additionally, their attempts are being met by soaring output from the United States.

Recent data shows that increased shale drilling has pushed U.S. oil production more than 10 percent over the previous year to 9.35 million bpd, close to the production level of top exporter Saudi Arabia.

Other reports show that inventories through April are up 80 million barrels since the beginning of the year, highlighting the inefficiency of OPEC’s market management.

Forecast

The trend is down and the fundamentals are bearish, but oversold technical conditions suggest that crude oil may be ripe for a short-covering rally. This move is not likely to lead to a change in trend, but rather set up another shorting opportunity.

The catalyst today is likely to be the weekly rig count. It has been trending higher for 22 weeks so there is no reason to suspect this trend will change. However, because of the current low price levels, the pace of the rig count increase may begin to slow. It would come as a surprise if there were no rigs added, however, we could see a spike to the upside in prices if a few rigs are shut down.

The daily chart suggests that short-sellers shouldn’t worry unless prices cross back above $45.28.