Oil Price Fundamental Daily Forecast – Underpinned by Stock Market Rebound, Increased Demand for Risky Assets

U.S. West Texas Intermediate and international-benchmark Brent crude oil futures are inching higher on Wednesday after brushing off earlier weakness. There were no changes in the fundamentals from earlier in the session, however, the major U.S. stock markets also shrugged off earlier weakness and turned higher, suggesting the price action in the oil market is related to a potential shift in investor sentiment.

At 1037 GMT, February WTI crude oil is trading $43.20, up $0.67 or +1.60% and March Brent crude oil is at $51.49, up $0.72 or +1.42%.

Despite the rebound in crude oil prices, traders are still concerned over the health of the global economy and its potential impact on future demand. This is likely to put a limit on short-term gains that may be fueled by profit-taking and short-covering.

Looking ahead, on January 1 an OPEC-led group is scheduled to cut production by 1.2 million barrels per day. Although there are currently doubts as to whether this will have a positive impact on the global supply glut and prices, some traders believe that over time, the situation will correct itself. However, gains could be limited because rising U.S. production is still a major issue.

On Tuesday, Russian Energy Minister Alexander Novak said that oil prices would become more stable in the first half of 2019, supported by OPEC and non-OPEC countries’ joint efforts to cut output.

Forecast

Given time, the OPEC cuts should support prices so the freefall selling should subside, however, we may not see a strong rally until the Iranian sanction exemptions expire. A recovery in the U.S. stock markets could help drive prices higher because of a shift in investor sentiment, but these gains are likely to be limited by rising concerns over a global economic slowdown.

Furthermore, we could start to see increased foreign demand for U.S. crude oil if the dollar continues to weaken.

If we do get a sustained overdue rally in the stock market then look for WTI and Brent crude oil to be underpinned by profit-taking and short-covering. We may see some speculative buying, but without a support base, it is likely to be limited.