Oil Price Fundamental Daily Forecast – Market Saturated With Long Speculators

U.S. West Texas Intermediate and international-benchmark Brent crude oil futures rose on Monday in a volatile trade. The markets started out higher in response to a drop in U.S. rigs and a conflict in the Middle East. Prices retreated at the mid-session on profit-taking and the news that Libya’s As-Sarah oil fields would reopen. A weaker dollar then drove prices back to the plus side into the close.

March WTI crude oil settled at $63.57, up $0.26 or +0.41% and April Brent crude oil closed at $68.63, up $0.39 or +0.57%.

In other news, Saudi Energy Minister Khalid al-Falih said market rebalancing might not occur until 2019, suggesting it would take longer than OPEC had previously indicated.

Traders are also starting to become concerned about speculators holding record net-long positions, with bullish bets outweighing bearish ones. This may mean the market will have trouble attracting new longs, making it more difficult to extend the rally.

Forecast

Crude oil prices are trading higher early Tuesday, boosted by reports of healthy economic growth as well as progress with the OPEC-led program to cut production, trim the global supply glut and stabilize prices.

Besides the OPEC production cuts, traders are saying that the economic outlook and seasonally colder weather has led to firmer oil demand growth, facilitating the continuation of a fall in oil inventories towards OPEC’s recent five-year average target.

Crude oil traders face a very important decision according to the daily chart. Last week’s reversal top is sending a bearish counter-trend signal, but the inability to follow-through to the downside proof that investors are still coming in to support the market.

Recent exchange and government data shows the market is currently saturated with long investors. In order to sustain the rally, new traders are going to have to be willing to buy strength at current price levels. If they stop buying then prices are likely to collapse into a value zone because of profit-taking.

The short-term range is $64.74 to $62.78. Its 50% level is $63.76. Trader reaction to this price will tell us if the buying is still strong, or if sellers are starting to take control.