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Oil Price Fundamental Daily Forecast – Shortfalls from Libya, Canada Could Be Supportive

By:
James Hyerczyk
Updated: Jun 26, 2018, 05:58 UTC

The fundamental news is supportive for higher prices, but because of last Friday’s nearly 5 percent rise, investors may be unwilling to chase prices higher at current levels. Since most of the rally was short-covering, I expect to see a short-term pullback into a value zone that should be attractive to new buyers.

Crude Oil

U.S. West Texas Intermediate and international-benchmark Brent crude oil futures settled lower on Monday after an early rally failed to gain traction. The market was supported by reports of an outage at Syncrude Canada’s 360,000 barrel per day oil sands facility that could last through July.

Also supporting prices was uncertainty over Libyan oil exports, but dragging prices lower was OPEC’s plan to raise output. There were also reports circulating that the United States may ask Russia to increase output in an effort to lower prices.

Forecast

Crude oil futures are trading mixed early Tuesday with U.S. oil modestly higher and the international favorite slightly lower.

At 0532 GMT, August WTI crude oil is trading $68.25, up $0.17 or +0.25% and September Brent crude oil is at $74.69, up $0.14 or +0.19%.

Trading in the oil market could get a little complicated over the next several days as investors continue to digest the details of last Friday’s OPEC decision to raise output. This could fuel a volatile, two-sided trade. Not only are investors trying to figure out the direction of prices, but they are also trying to determine the impact of OPEC’s move on WTI and Brent crude oil.

In addition to trying to assess the impact of the decision by OPEC to raise output, traders are also facing uncertainty around oil exports by Libya and a supply disruption in Canada.

Helping to contribute to the two-sided trade is uncertainty as to the impact of announced U.S. sanctions against Iran, and a possible tariff on U.S. imports into China. Because of this, investors aren’t sure if the output will come in north or south of about 600,000 barrels per day.

In my opinion, I think the fundamental news is supportive for higher prices, but because of last Friday’s nearly 5 percent rise, investors may be unwilling to chase prices higher at current levels. Since most of the rally was short-covering, I expect to see a short-term pullback into a value zone that should be attractive to new buyers.

I’m bullish because shortfalls from Libya and Canada were not factored into OPEC’s decision to raise output. They were primarily looking a reduced figures from Venezuela and Iran. If these conditions continue to linger then we should have a supply deficit later in the year.

Investment bank Jefferies says, “Despite the OPEC agreement we believe that tight supply is likely to drive oil prices higher during 2018.” Bank of America Merrill Lynch said tight market conditions would push Brent prices to $90 per barrel by the second quarter of 2019.

While the fundamentals appear to be supportive for a rally, gains could be limited if Russia agrees to a U.S. request to increase production. We may not know the details about this agreement, however, until U.S. President Trump meets with Russian President Putin in July.

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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