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Oil Price Fundamental Daily Forecast – “Risk-Off” Tone in Financial Markets Limiting Gains

By:
James Hyerczyk
Published: Apr 8, 2019, 08:25 UTC

Today is shaping up to be a “risk-off” trading day, which could limit crude oil’s gains. This is not likely to be a trend changing event, but it could encourage investors to book profits after one week of strong gains.

Crude Oil

U.S. West Texas Intermediate and international-benchmark Brent crude oil futures are trading slightly higher on Monday. Signs of tightening supply are helping to support the markets, but gains are likely being limited by trader concerns over a slowing global economy and its possible impact on future demand. Basically, today’s “risk-off” tone in the financial markets is causing investors to think twice about chasing prices higher at current price levels.

At 08:03 GMT, May WTI crude oil is trading $63.36, up $0.28 or +0.48% and June Brent crude oil is at $70.67, up $0.33 or +0.47%.

Both crude oil futures contracts hit 5-month highs today, but momentum slowed as they approached key technical resistance areas. For May WTI crude oil that level is $63.45. For Brent crude oil, the upside target is $71.77.

Fundamentally, the markets are being primarily supported by OPEC’s ongoing supply cuts which began on January 1, and U.S. sanctions against Iran and Venezuela.

Providing additional support is a military conflict in Libya that could lead to a supply disruption. This type of event has a tendency to spike prices higher because of increased speculative buying. Furthermore, optimism over U.S.-China trade negotiations has helped bolster the demand outlook.

Although most of the news is bullish, the market could face some headwinds over the near-term. According to CNBC, “Russia is a reluctant participant in its agreement with OPEC to withhold output, and Russian oil production may increase again if a deal with the producer club is not extended once it expires before July 1,” Energy Minister Alexander Novak said on Friday.

Secondly, traders are still concerned about rising U.S. crude oil production which reached a record 12.2 million bpd in late March. Data also shows that U.S. crude exports have also risen, breaking through 3 million bpd for the first time earlier this year.

Finally, there are still concerns over a slowing global economy. The main worry is the timing of a U.S.-China trade deal. Conditions could worsen if the two economic powerhouses fail to resolve their issues soon.

Daily Forecast

Today is shaping up to be a “risk-off” trading day, which could limit crude oil’s gains. This is not likely to be a trend changing event, but it could encourage investors to book profits after one week of strong gains.

If traders decide to ignore the external events then the direction of the May WTI crude oil market is likely to be determined by trader reaction to the technical resistance level at $63.45. This price should act like a pivot.

If buyers can drive prices through $63.45 then this should drag June Brent crude oil into its key upside target level at $71.77.

About the Author

James is a Florida-based technical analyst, market researcher, educator and trader with 35+ years of experience. He is an expert in the area of patterns, price and time analysis as it applies to futures, Forex, and stocks.

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