Oil Price Fundamental Daily Forecast – Supply/Demand Picture Supportive

U.S. West Texas Intermediate and internationally-favored Brent crude oil futures are hovering near levels not seen since 2014 early Tuesday. Prices are being underpinned by OPEC-led production cuts and strong demand due to strong growth in the global economy.

At 0800 GMT, March WTI crude oil futures are trading $64.38, down $0.37 or -0.57%. April Brent crude oil is at $69.51, down $0.29 or -0.42%.

Providing some support today is a report from Bank of America Merrill Lynch. They are bullish on crude oil because of the faster-than-expecting tightening in the global oil market due to three factors:  improving cyclical conditions, cold winter weather, and higher than expected OPEC compliance.

“We now see a deficit of 430,000 barrels per day (bpd) in 2018 compared to 100,000 bpd prior, and thus see Brent crude oil prices averaging $64 per barrel in 2018 compared to $56 prior. Our WTI projection also moves up from $52 per barrel to $60 per barrel for the same reasons,” the bank said.

Additionally, Morgan Stanley has also turned bullish on the market. They said “oil markets were 0.5 million bpd undersupplied in 2017,” adding that 2018 would still see a 200,000 bpd deficit.

Morgan Stanley also said it expected Brent to rise to around $75 per barrel by the third quarter of this year.

Forecast

The hedge funds have been driving prices higher for the right reasons. The OPEC-led production cuts have been propping up prices since it started to withhold output in January last year. These cuts are expected to last until the end of December 2018.

Healthy demand is another reason for the surge in prices. Economic growth is one reason for the jump in demand. A weakening dollar is another contributing factor to the rise in prices.

One fundamental that could slow down the rally or begin to encourage profit-taking is expectations of increased U.S. production. Instead of hitting 10 million barrels per day this month, as widely expected, U.S. production fell from 9.8 million bpd in December to 9.5 million bpd currently. Despite this news, most analysts still expect U.S. production to break through 10 million bpd soon.

The strong fundamentals have helped build the support base. Aggressive hedge fund buyers have been feeding off this news to fuel the upside momentum. Therefore, I have to conclude that the current rally will continue until the hedge funds stop buying.