Oil Price Fundamental Daily Forecast – Still Searching for Value Area

Crude oil prices are rebounding slightly early Thursday, but the move is likely a short-term technical adjustment as the fundamentals strongly suggest the market faces major challenges ahead. Despite the early short-covering, most investors are still shying away from the long side as they wait for signs that output cuts by OPEC and other major producers are ending a three-year supply glut.

Early Thursday, August West Texas Intermediate crude oil is trading $42.51, down $0.02 or -0.05%. September Brent crude oil is trading $45.00, down $0.05 or -0.11%.

Since reaching its high for the year in late February, crude oil prices have plunged over 20 percent, completely erasing the gains from late last year shortly after the first announcement of the OPEC-led production cuts. This means that crude oil is officially in a bear market.

Most of this week’s selling pressure has been fueled by reports of production increases in Nigeria and Libya. The price actions suggests that bullish traders just pulled the plug on their positions, triggering a spike to the downside.

The market is so bearish that even a bigger cut in U.S. crude stockpiles couldn’t generate enough buying to sustain a rally on Wednesday.

According to the U.S. Energy Information Administration, crude inventories fell 2.5 million barrels in the week-ended June 16. Analysts were looking for a decrease of 2.1 million barrels. Traders said that imports rose marginally by 56,000 barrels per day.

Gasoline stocks fell 578,000 barrels, compared with analysts’ expectations for a seasonally unusual 443,000-barrel gain, which had been seen as bearish in the market. Gasoline demand continues to disappoint. Traders were hoping the start of the summer driving season would drive up gasoline demand.

Forecast

Crude oil prices should continue to fall until the last of the stubborn longs are driven out of the market and until prices reach a value area attractive enough to draw the attention of fresh buyers.