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James Hyerczyk
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Crude Oil
Crude Oil

U.S. West Texas Intermediate and international-benchmark Brent crude oil futures are trading flat shortly before the regular session opening on Thursday. Today’s early move suggests a more balanced market than previously thought, given the price action earlier in the week.

At 0932 GMT, May WTI Crude Oil futures are trading at $61.01, down $0.01 or -0.02% and June Brent Crude Oil is at $64.62, down $0.14 or -0.22%.

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Daily May WTI Crude Oil

The catalysts behind today’s early price action is healthy global demand and rising U.S. production. At this time, both appear to be offsetting each other, creating a more neutral tone in the marketplace. This also suggests that the next major move in the market will be determined by whether the hedge funds prefer to remain long at current price levels, or if they want to continue to liquidate stale long positions like they have been doing in recent weeks.

On Wednesday, the markets received some support when OPEC said that oil consumption was expected to grow by 1.62 million barrels per day (bpd) in 2018. However, gains were limited by a report from the U.S. Energy Information Administration which showed commercial crude inventories were up by 5 million barrels, at 430.93 million barrels.

OPEC also raised its forecast for non-member oil supply to almost double the growth predicted four months ago. Additionally, the group said non-OPEC producers would boost supply by 1.66 million bpd in 2018.

Daily June Brent Crude Oil

Forecast

Both WTI and Brent Crude Oil are hovering near key 50% levels on the daily chart while trading inside a technical “triangle” chart pattern. This tends to support the notion of a “balanced” market. However, it also suggests impending volatility.

As long as the supply/demand fundamentals narrative remains essentially the same, the difference maker in the market will be hedge fund activity. Recently, we’ve seen signs that the crude oil rally may be over. According to the Commodity Futures Trading Commission, money managers cut their combined net long positions in the six most important futures and options contracts linked to petroleum prices by 50 million barrels in the week to March 6.

If the markets remain rangebound then the hedge funds may start to move money out of crude oil and into more active markets. This selling would drive prices sharply lower. Additionally, any prolonged weakness in the stock market will also weigh on crude oil prices.

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