Oil Price Fundamental Daily Forecast – Rig Count Rises, Hedge Funds Slash Bullish Wagers

U.S. West Texas Intermediate and international-benchmark crude oil futures are trading lower after giving up earlier gains. The markets traded higher shortly after the opening due to early strength in U.S. equity futures contracts, but prices retreated after buyers failed to materialize to sustain the move. Traders cited general nervousness over the stock markets, a strong U.S. Dollar and concerns over a decline in demand as the reasons for the weak buying.

At 0753 GMT, December WTI crude oil is trading $67.25, down $0.34 or -0.50% and January Brent crude oil is at $77.17, down $0.49 or -0.63%.

In other news, hedge funds slashed their bullish bets on U.S. crude oil in the latest week to the lowest level in more than a year, according to the U.S. Commodity Futures Trading Commission (CFTC).

The CFTC report showed that large speculators cut its combined futures and options position in New York and London by 42,644 contracts to 216,733 in the week to October 23, the lowest level since September 2017.

Also on Friday, Baker Hughes energy services firm said U.S. drillers added two oil rigs in the week to October 26, bringing the total count to 875, the highest level since March 2015.

Forecast

The fundamentals are bearish so any rally we may see is likely to be related to short-term oversold technical conditions or short-covering due to an easing of volatility in the equity markets.

Investors are nervous after last week’s stock market plunge, while safe-haven buying of the U.S. Dollar is helping to limit demand for dollar-denominated crude oil. Traders said that some of the selling is also being generated by cooling economic conditions and symptoms of softer international trade.

The weakness in prices is even being fueled by a slowdown in global trade, with rates for dry-bulk and container ships – which carry most raw materials and manufactured goods – coming under pressure.

Worries over increased U.S. production is also pressuring prices. The last report from the U.S. Energy Information Administration showed that U.S. output had increased to 11 million barrels per day. This figure can only go higher due to the rise in the number of oil rigs.

Perhaps helping to limit losses are signs of tightening supplies. On the supply side, the markets are tight in Asia where the visible amount of unsold crude oil stored on tankers is low. According to Refinitiv Eikon ship tracking data, just four stationary supertankers are currently filled with crude oil, down from around 15 a year ago, and from 40 in mid-2016 during the peak of the supply glut.