Oil Price Fundamental Daily Forecast – Short-covering Rally Being Fueled by Weaker Dollar, Stock Market Stability

A weak U.S. Dollar and bullish Saudi comments are helping to underpin U.S. West Texas Intermediate and internationally-favored crude oil futures shortly before the regular session opening.

At 0918 GMT, April WTI crude oil futures are trading $61.06, up $0.55 or +0.91% and April Brent crude oil is at $64.67, up $0.31 or +0.48%.

WTI is rebounding after touching its lowest level since December 22 late last week, however, the short-term trend remains down with the market currently sitting inside a major technical retracement area bounded by $61.20 to $59.98.

The short-term range is $66.00 to $57.90. This makes its 50% to 61.8% retracement zone at $61.95 to $62.91 its primary upside target. Since the main trend is down, we could see sellers re-emerge on a test of this zone.

Brent crude oil futures tested its key retracement zone at $66.03 to $64.91, but was rejected on the initial attempt to overcome this zone. If it succeeds then $65.89 to $66.86 will become the primary upside target.

Yesterday, oil markets received a boost from comments by Saudi Arabia after it voiced support for output cuts backed by OPEC and other major producers including Russia in an effort to tighten the global supply and stabilize prices.

Additionally, the U.S. Energy Information Administration said on Wednesday that U.S. crude inventories rose by 1.8 million barrels in the week to February 9, to 422.1 million barrels.

Forecast

While the Saudi comments and EIA report may be lending some support to crude oil prices, the technical picture suggests that WTI and Brent futures still have many price hurdles to overcome before we can say the rally is resuming.

Additionally, soaring production in the United States is still threatening to undermine the OPEC-led efforts to tighten markets. Recently, U.S. crude oil production rose to a fresh record of 10.27 million barrels per day (bpd), more than top exporter Saudi Arabia pumps and within reach of No. 1 producer Russia.

I expect prices to continue to hover around the key retracement areas mentioned earlier. Volatility could be heightened, however, due to the influence of the wild swings in the stock market and the weakening U.S. Dollar.

The key variable at this time is the OPEC-led deal to cut production. I think there are issues developing despite what the Saudi’s said on Wednesday.