Oil Price Fundamental Daily Forecast – Rig Count Increase Could Raise Bearish Concerns This Week

U.S. West Texas Intermediate and international-benchmark Brent crude oil opened higher early Monday but have since retreated to nearly unchanged.

The price action suggests investors are approaching the markets with caution at the start of the week. The markets are being underpinned by ongoing geopolitical tensions in the Middle East. Helping to limit gains is a rise in the rig count in the United States, suggesting producers are preparing to increase output.

At 0527 GMT, January WTI crude oil is trading $57.02, up $0.04 or +0.05% and February Brent crude oil is at $63.43, up $0.02 or +0.03%.

Traders are saying the long-term uptrend is being supported by expectations of an extension of the OPEC-led deal to limit output. Tensions in the Middle East are raising the prospects of supply disruptions while attracting some speculative buying.

Over the week-end Bahrain reported an explosion which caused a fire at its main oil pipeline on Friday. It blamed it on sabotage, linking the attack to Iran, which denied any role in the incident.

Despite the bullish long-term outlook led by strong supply-side fundamentals and the short-term speculative buying related to the Middle East concerns, traders are a little nervous at current price levels because of an increase in U.S. drilling for new production.

On Friday, General Electric Company’s Baker Hughes energy services firm reported that U.S. drillers added nine oil rigs in the week to November 10. This was the biggest jump since June and it brought the total count up to 738.

Traders are also noting that the 738 total is still much higher above the 452 rigs which were active a year ago. This indicates that the U.S. oil industry is comfortable operating at current crude price levels.

Last week, the U.S. Energy Information Administration reported that U.S. oil producers have raised output by more than 14 percent since mid-2016 to a record 9.62 million barrels per day. This news helped form a technical closing price reversal top, a signal that indicates the presence of sellers.

We could see a near-term break into at least $54.62 over the near-term if WTI sellers can take out $56.65 convincingly. Brent crude oil is vulnerable under $62.78 with the first major target $60.36.