Oil Price Fundamental Daily Forecast – Prices Could Consolidate as Stock Markets Stabilize

U.S. West Texas Intermediate and international-benchmark crude oil futures rallied early Monday, but gave back most of their gains in response to a monthly report from OPEC.

March WTI crude oil settled at $59.29, up $0.09 or +0.15%. April Brent crude oil finished the session at $62.59, down $0.20 or -0.32%.

OPEC said on Monday it expects demand for oil to grow faster than it originally expected in 2018, but the organization also sees supplies from beyond the producer group surging this year, driven by rising U.S. output.

A monthly report also showed OPEC’s production was little changed in January as the group continues to limit its output for a second year in order to balance an oversupplied market. However, key members like Iraq raised their output in January.

The 14-member cartel said it now sees non-OPEC production growing by 1.4 million barrels per day, up 250,000 bpd from its estimate in its last monthly report. It expects nations outside OPEC to pump a total of 59.26 million bpd this year, 320,000 bpd higher than its last forecast.

“According to the most recent assessment, the steady oil price recovery since summer 2017 and renewed interest in growth opportunities has led to oil major catching up in terms of exploration activity this year, both in the shale industry and offshore deep water,” OPEC said.

In December, global stockpiles were about 109 million barrels above the five-year average, which is OPEC’s target.

“In line with the existing overhang, the market is only expected to return to balance towards the end of this year,” OPEC said Monday.

Forecast

Crude oil is trading slightly better early Tuesday, but posting a narrow range on light volume. At 0851 GMT, March WTI crude oil is trading $59.44, up $0.16 or +0.27% and April Brent crude oil is at $62.84, up $0.25 or +0.40%.

Traders are saying the rebound in global stock markets is helping to lift crude oil prices early Tuesday. With the markets seemingly returning to calmer waters, oil traders said attention was turning to inventory levels to gauge crude supply levels.

The price action suggests the change in inventories this week will be crucial for determining whether further declines in the oil price are in the cards. Later today, the American Petroleum Institute will release its weekly figures. On Wednesday, the U.S. Energy Information Administration’s will report its estimates.

I expect to see crude oil prices consolidate today as long as the stock market remains stable. Volatility will return to the oil market with the release of the API report late in the session.