Oil Price Fundamental Daily Forecast – Range Bound: Declining Inventories Bullish, High Output Bearish

U.S. West Texas Intermediate and internationally-favored Brent crude oil futures are trading slightly better early Thursday after yesterday’s nearly 2 percent sell-off. The Brent futures contract continues to perform a little better than the U.S. market.

At 0700 GMT, October WTI crude oil futures are trading $47.00, up $0.06 or +0.13% and November Brent crude oil is at $50.22, up +0.12 or +0.24%.

The weaker U.S. Dollar may be providing some support. The early price action suggests this may be enough to underpin the market, but not strong enough to support a real rally.

The markets are also testing major technical 50% to 61.8% retracement zones. This essentially supports the idea that falling crude inventories are providing support while high output is capping gains.

November Brent Crude is finding support at $50.11. However, momentum won’t shift to the upside unless $50.88 is overcome. If support at $50.11 fails and selling pressure increases, the market could plunge to $49.33.

October WTI Crude is another story. It is trading on the weak side of the first support area at $47.46 to $47.26. This area is new resistance. The next downside target is $46.52. If this area fails then $45.57 is the next target.

Forecast

Both WTI and Brent crude are at critical areas on the charts. Trading inside a technical retracement zone means there is equal selling pressure from the bearish traders and equal buying pressure from the bullish traders.

The price action is being supported by the news. On the bullish side, U.S. commercial crude oil stocks are down almost 13 percent from their peaks in March to 466.5 million barrels, well below this time last year. On the bearish side, the soaring U.S. output is eroding efforts by OPEC to tighten the market and stabilize prices.

I’m looking for prices to stabilize around the retracement areas on the charts and remain sideways over the near-term. Although the pace of the declines strongly supports the notion that OPEC production cuts are working, the price action indicates that there are enough skeptics out there to keep a lid on prices.