Oil Price Fundamental Daily Forecast – Stock Market Volatility Could Encourage Profit-Taking

U.S. West Texas Intermediate and international-benchmark Brent crude oil futures are edging higher on Friday. Brent futures are trading at their highest level since November 20, while WTI futures are struggling well under their February 4 main top at $56.05. The OPEC-led production cuts and U.S. sanctions against Venezuela are driving Brent futures higher while only underpinning the WTI contract

At 07:14 GMT, April WTI crude oil futures are trading $54.97, up $0.18 or +0.33% and April Brent crude oil is at $64.86, up $0.29 or +0.45%.

The spread between Brent and WTI futures continues to widen and is currently trading near $10.00. This is up from $6.80 on January 31. Brent is moving up faster than WTI because this is the oil traded by OPEC and Venezuela. Rising U.S. production is slowing down the pace of WTI’s rally.

Helping to support the markets this week is the news that Saudi Arabia would cut even more in March than it originally pledged. Russia said that it has cut its oil production by 80,000-90,000 barrels per day from its level in October, Moscow’s reference level for its cuts, the country’s energy minister said.

Bank of America Merrill Lynch said in a note that the combination of the voluntary cuts by OPEC and its allies, and the involuntary sanctions against Venezuela and Iran should be enough for Brent to average about $70 a barrel. There analysts also said it expects “a 2.5 million barrels per day drop in OPEC supply from 4Q18 into 4Q19.

Bullish traders received additional bullish news about a further tightening of the market when new reports showed lower shipments from the North Sea, Mexico and Brazil.

While most of the supply news has been supportive for Brent crude oil, gains have been limited in WTI futures because of soaring U.S. crude production. Most analysts expect U.S. to rise past 12 million bpd soon, and perhaps even hit 13 million bpd by the end of the year.

On the demand side, traders are seeing downside risks because of the impact of the U.S.-China trade dispute on the global economy.

Daily Forecast

The script for WTI and Brent crude prices is expected to remain the same on Friday. OPEC-led production cuts and Venezuelan sanctions are expected to underpin prices while concerns over rising U.S. production and slowing demand will limit gains.

Traders will be paying close attention to the volatility in the stock market too since crude oil has been moving lock-step with equity prices since Christmas. A steep break in the stock market could encourage crude oil traders to book profits. This could put short-term pressure on crude oil prices.