Oil Price Fundamental Daily Forecast – Looking for Two-Sided Volatile Trade

U.S. West Texas Intermediate and international-benchmark Brent crude oil rebounded after an early sell-off. Traders said that oversold technical conditions and profit-taking probably contributed to the late session recovery.

Prices eased early Thursday after the International Energy Agency increased its forecast for U.S. oil output growth in 2018, raising the prospect of excess supply.

On Thursday, February WTI crude oil settled at $57.08, up $0.49 or +0.87% and March Brent crude oil finished the session at $62.66, up $0.85 or +1.38%.

The IEA raised its U.S. crude output growth forecast for 2018, saying it would climb by 870,000 barrels per day (bpd) compared with its November forecast of 790,000 bpd.

The IEA also said it expects the oil market to have a surplus of 200,000 bpd in the first half of next year before reverting to a deficit of about 200,000 bpd in the second half. This would mean 2018 overall would show “a closely balanced market.”

OPEC also revised its estimate for U.S. oil output growth for 2018 to 1.05 million bpd, while the U.S. Energy Information Administration increased its growth forecast to 780,000 bpd.

Forecast

We’re likely to continue to see a two-sided trade over the near-term, however, a downside bias appears to be forming. Due to concerns over increasing U.S. production, prices would be a lot lower if not for the Forties pipeline shutdown and the reported draw by the EIA.

At this time, Brent prices remain underpinned by the major outage on the Forties crude pipeline that is expected to last several weeks. A fall in U.S. crude inventories last week also lent some support.

The WTI chart shows three lower tops, a sign that investors are selling rallies. The hedge funds could be supporting the market on the dips, but if they stop buying and start selling, prices could collapse further.