Oil Price Fundamental Daily Forecast – Short-Term Correction or Steep Break Will be Determined by Hedge Funds

U.S. West Texas Intermediate and international-benchmark Brent crude oil futures are edging lower on Thursday, giving back some of this week’s gains on expectations of slower economic recovery and that the market’s robust performance could tempt producers like Saudi Arabia and Russia to reduce output by less.

At 12:47 GMT, April WTI crude oil futures are trading $58.19, down $0.38 or -0.65% and April Brent crude oil is at $61.04, down $0.43 or -0.70%. Brent is coming down after posting a nine session winning streak, its longest sustained period of gains since January 2019. WTI may be ending and eight day winning streak.

OPEC+ Output Cuts

WTI and Brent crude have been driven higher for nearly a year as OPEC+ reduced output. The recent surge has been fueled by Saudi Arabia’s decision to trim a million barrels per day from output starting on February 1 and extending into the end of March.

Falling US Crude Supply Supportive

U.S. crude stockpiles last week fell for a third straight week, dropping 6.6 million barrels to 469 million barrels, their lowest since March, according to the Energy Information Administration. Analysts in a Reuters poll had forecast a 985,000-barrel increase.

Optimism Created by Vaccine Rollout, Stimulus Hopes

While the OPEC+ output cuts may have sparked the start of the rally, crude prices have jumped considerably since November as governments kicked off vaccination drives for COVID-19 while putting in place large stimulus packages to boost economic activity.

Daily Forecast

The early price action suggests some traders may be booking profits after a steep run-up in prices on the notion that prices have moved too far ahead, and could tempt producers to open their taps a bit more.

Despite another reported draw in U.S. crude stockpiles, WTI and Brent are trading lower on Thursday. This suggests the market is a little top heavy. We could see a short-term pullback due to technically oversold conditions, but we’re going to need to see some hedge fund liquidation to get an even larger decline.

This could happen if Saudi Arabia or Russia, or other OPEC allies decide to lighten up on their production cuts. At this time, there is some chatter that the Saudi’s could roll back their unilateral Feb/Mar production cuts and that OPEC could signal more production coming back online at the March meeting.

If OPEC and its allies decide to trim their production cuts then the hedge funds will start booking profits, setting up the possibility of a steep decline.