Oil Price Fundamental Daily Forecast – Stronger Dollar, Supply Risk Likely to Fuel Short-Term Correction

U.S. West Texas Intermediate and international-benchmark Brent crude oil futures tumbled more than 2.5% on Friday as a steep rise in the U.S. Dollar dampened foreign demand for the dollar-denominated asset. Meanwhile traders began to price in the possibility of an increase in supply starting in April.

On Friday, April WTI crude oil settled at $61.50, down $2.03 or -3.20% and May Brent crude oil finished at $64.42, down $1.69 or -2.62%.

The catalyst behind the jump in the U.S. Dollar was a collapse in bond prices. The notion that more supply is likely to return to the market was tied to the rally in crude oil prices to back above pre-pandemic levels.

Traders also said crude oil prices were pressured from recent highs as Texas energy companies began preparations to restart oil and gas fields shuttered by freezing weather and power outages.

Crude Oil Declines as US Dollar Jumps amid Surge in Treasury Yields

Dollar-denominated crude was pressured on Friday after a jump in the U.S. Dollar was fueled by rising Treasury yields. On Thursday, the 10-year yield surged more than 16 basis points to 1.614%, its highest level since February 2020 and more than half a percentage point higher since the end of January.

The move unnerved commodity and stock market investors as well as buyers of commodity-linked, higher-risk currencies.

The jump in yields was tied to a collapse in bond prices after U.S. Federal Reserve Chair Jerome Powell reiterated on Tuesday that interest rates will remain low and the Fed will keep buying bonds to support the U.S. economy, but failed to convince traders that the central bank would not alter monetary policy even if the economy heats up and inflation rises.

OPEC+ to Weigh Modest Oil Output Boost at Meeting

Worries about increased supply also weighed on prices after Reuters reported that OPEC+ oil producers will discuss a modest easing of oil supply curbs from April given a recovery in prices.

Three OPEC+ sources said an output increase of 500,000 barrels per day from April looked possible without building up inventories, although updated supply and demand balances that ministers will consider at their March 4 meeting will determine their decision.

Oil Extends Losses as Texas Prepares to Ramp Up Output after Freeze

Oil prices fell for a second day on Friday, retreating further from recent highs, as Texas energy companies began preparations to restart oil and gas fields shuttered by freezing weather and power outages.

Texas refiners halted about a fifth of the nation’s oil processing amid power outages and severe cold.

Short-Term Outlook

All of these events are not likely to lead to a major change in trend as long as OPEC+ continues to control the supply and vaccination advances lead to increased demand. However, a price pullback would be more corrective in nature since prices are well above pre-pandemic levels at this time and ahead of the fundamentals.