Oil Price Fundamental Daily Forecast – Strengthening Dollar, Production Concerns Weighing on Prices

U.S. West Texas Intermediate and international-benchmark Brent crude oil futures tumbled on Monday as a strengthening U.S. Dollar lead to a drop in demand for the dollar-denominated commodity. Sellers also expressed concerns over rising U.S. output.

March WTI crude oil futures settled at $65.56, up $0.58 or +0.88% and April Brent crude oil finished at $69.20, up $0.95 or +1.35%.

Forecast

Prices continue to weaken early Tuesday with the WTI futures contract threatening to take out a key pivot at $64.72. Taking out this price could trigger a further break into the major support at $64.11. Crossing to the weak side of this level will mean the selling pressure is getting stronger.

The Brent futures contract is trading on the weak side of a key technical area at $69.35 to $69.01. This puts the market in a position to challenge the last main bottom at $67.92. Taking out this level will change the main trend to down. This could trigger an acceleration into the major 50% level at $66.03.

The price action suggests that investors are anticipating a strong recovery by the U.S. Dollar. On Monday, rising U.S. Treasury yields helped underpin the dollar. This made crude oil less attractive to foreign buyers because crude is a dollar-denominated commodity.

A rising dollar combined with increasing U.S. production will be bearish for crude oil prices. The price action suggests that the hedge funds may be starting to take profits, and this also means they have stopped buying.

We’re looking for weakness to continue due to light profit-taking. If sellers start to hit sell stops then we could see an acceleration to the downside on heavy hedge fund liquidation.

We could see increasing volatility also because the dollar is likely to be influenced by President Trump’s State of the Union speech late Tuesday and the release of the Fed’s monetary policy statement on Wednesday.

It looks as if momentum is shifting to the downside which could turn into a change in trend.