Oil Price Fundamental Daily Forecast- Renewed Hedging Pressure Could Limit Gains

U.S. West Texas Intermediate and international-benchmark crude oil rose sharply on Thursday after Saudi Arabia and Russia hinted that they would limit production through next year. This bullish news outweighed government data on Wednesday that showed record U.S. exports.

November WTI crude oil settled at $50.79, up $0.81 or +1.62% and December Brent crude oil closed the session at $57.00, up $1.20 or +2.15%.

Russian President Vladimir Putin said this week that a pledge by OPEC and other producers, including Russia, to cut oil output to boost prices could be extended to the end of 2018, instead of expiring in March 2018.

Russian Energy Minister Alexander Novak said on Thursday that Moscow would support new countries joining the agreement to restrict oil supply.

Forecast

Crude oil’s rally was impressive on Thursday, but it didn’t do much to the chart pattern. All it really showed was that traders were respecting a technical retracement area that is often support.

The key support zone for the WTI futures contract is $50.23 to $49.60. This week’s low is $49.76. The key area on the upside that has to be overcome by buyers to resume the rally is $51.31 to $51.68.

The key support zone for the Brent futures contract is $55.88 to $55.17. This week’s low is $55.39. The key area on the upside that has to be overcome by buyers to resume the rally is $57.13 to $57.54.

Putin and Saudi Arabia’s King Salman can talk all they want about extending the production cuts, but until announce an actual agreement, it’s just talk. Investors have already been down this road. If you recall, in September, OPEC and the other producers had a meeting to discuss this very topic and nothing was accomplished.

Even if there is an informal agreement to extend the output cuts, traders are saying it will be more like a commitment to taper the cuts.

Despite the strong rally on Thursday, crude oil could become rangebound because there is evidence of hedging pressure at current price levels. I think we can continue to see increased hedging pressure from producers each time the markets move above $50.00.

Another bearish factor is the return to production of Libya’s Sharara oilfield on Wednesday after an armed brigade forced a two-day shutdown.

In other news, President Trump is expected to announce soon that he will decertify the landmark international deal to curb Iran’s nuclear program. This will be the first step that could lead to renewed U.S. sanctions against Tehran and could limit Iranian sales of oil.