Oil Price Fundamental Daily Forecast – Vulnerable to Near-Term Correction, Higher Volatility

James Hyerczyk
Crude Oil
Crude Oil

U.S. West Texas Intermediate and internationally-favored Brent crude oil futures recovered on Thursday to post a small gain after Wednesday’s steep sell-off. The markets were supported by supply cuts by major exporters, however, the inability to take out this week’s two-year highs suggested the markets were still vulnerable to near-term weakness.

January WTI crude oil futures settled at $57.39, up $0.34 or +0.60% and February Brent crude oil finished the session at $63.74, up $0.46 or +0.73%.

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Daily December West Texas Intermediate Crude Oil

Traders attributed the rally to new buyers betting an OPEC-led coalition that is controlling current production cuts would agree to an extension of the strategy beyond the March 2018 expiration date when it meets on November 30 in Vienna, Austria.

Forecast

Crude oil markets are trading steady to lower early Friday. The technical chart pattern suggests investor indecision and impending volatility.

At 0638 GMT, January WTI crude oil is trading $57.32, down $0.07 or -0.12% and February Brent crude oil is at $63.62, down $0.12 or -0.19%.

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Daily February Brent Crude

Supporting the market is the ongoing supply cuts led by OPEC and other major producers including Russia as well as stronger demand, however, gains are being limited by worries about rising U.S. shale output. The markets are also being underpinned by ongoing geopolitical tensions in the Middle East.

Basically, we’re looking at a possible standoff over the near-term with both the bulls and the bears building strong cases for their positions. Since the hedge and commodity funds are holding large bullish positions, I think the next move will be up to them.

If they continue to show a willingness to buy strength then this will extend the rally. However, according to The Herd Theory, if one decides to aggressively book profits, they all may start to follow suit and prices could plunge into value areas.

Essentially, it comes down to whether investors are more interested in buying strength or weakness. The volatility will come from whether the tensions in the Middle East escalate or if the U.S. rig count or U.S. production rises over the near-term.

Prices could plunge if, for example, U.S. production increases and the OPEC-led producers decide to pass on extending the cuts in output. Prices could spike higher if the geopolitical events lead to a supply disruption.

The current chart patterns indicate that January WTI crude oil is vulnerable to $54.62 to $53.78 and February Brent crude oil has a target zone at $60.36 to $59.40.

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