Oil Price Fundamental Daily Forecast – Ripe for Counter-Trend Rally to Set Up Next Selling Opportunity

U.S. West Texas Intermediate and international-benchmark Brent crude oil settled lower on Monday. Traders continued to price in rising U.S. production and possible global supply growth.

July WTI crude oil futures settled at $64.75, down $1.06 or -1.64% and August Brent crude oil finished at $75.29, down $1.50 or -1.99%.

Technical factors also helped accelerate the price slide with WTI taking out key support levels while triggering a number of sell stop exit orders.

Forecast

Crude oil is edging higher early Tuesday, but there haven’t been any notable changes in the fundamentals to drive the price action. The market is basically being driven by profit-taking and position-squaring after testing a pair of major 50% levels on the daily and weekly charts.

At 0646 GMT, July WTI crude oil is trading $65.12, up $0.37 or +0.59% and August Brent crude oil is at $75.55, up $0.26 or +0.35%.

We previously mentioned that we wouldn’t be surprised by a two-sided trade heading into OPEC’s June 22 meeting in Vienna. This is what professionals do in the markets. They trade the trend when the order flow and the fundamentals are on their side then create disinformation to rattle the markets a little and shake out a few of the weaker traders. In this case, weak shorts who may have tried to press the market lower at an unfavorable level.

No one likes to short weakness after a substantial sell-off because it increases the risk on the trade. Therefore, we could see a few days of counter-trend trading to allow the major bears to re-enter or up their short positions at more favorable price levels.

Perhaps fueling a 1 to 2 day short-covering rally will be Tuesday’s American Petroleum Institute’s weekly inventories report, or Wednesday’s similar report from the U.S. Energy Information Administration. Both are expected to show drawdowns ranging from 1.0 to 2.5 million barrels on average in the week ended June 1.

Since the fundamentals are expected to remain essentially the same until the meeting on June 22, technical traders could drive the price action until then. Fundamental traders are locked-in on rising U.S. production and a hike in OPEC-led production by as much as 1 million barrels per day. Technical investors will be looking at and reacting to oversold oscillators and indicators as well as moving averages.

I don’t see a change in trend coming, but I can live with a short-term correction at this time.