Oil Price Fundamental Daily Forecast – Week Starts With Bullish Supply Concerns

U.S. West Texas Intermediate and global-favorite Brent crude oil futures are trading higher but in a narrow range. There has been no follow-through to the downside after Friday’s nearly 1% sell-off. The price action is being driven by a decline in U.S. drilling activity and reports of fighting in Syria between Turkish forces and Kurdish fighters.

At 0724 GMT, March WTI Crude Oil futures are trading $63.39, up $0.08 or +0.13% and April Brent Crude Oil is at $68.38, up $0.14 or +0.21%.

Traders immediately reacted on Monday to Friday’s report from General Electric’s Baker Hughes energy services firm. The report said U.S. drillers cut five oil rigs in the week to January 19, bringing the total count down to 747.

Concerns over supply issues are also driving the price action early Monday. According to reports, in Syria, Turkey’s army and rebel allies battled U.S.-backed Kurdish militia in the Afrin province on Sunday, stepping up a two-day-old Turkish campaign against Kurdish fighters that has opened a new front in Syria’s civil war.

Forecast

The early price action suggests the battle this week will be between bullish investors trading the news events in anticipation of a future drop in supply and those who believe that increased U.S. production and seasonal pressures on demand will drive prices lower.

At this time, I’m leaning to the downside because we don’t know how the drop in the number of rigs will affect U.S. production and we don’t know if the conflict in Syria will disrupt the supply routes for oil delivery.

We do know that as of the week-ending January 12, U.S. production is rising, coming in at 9.75 million barrels per day. According to the U.S. Energy Information Administration and the International Energy Agency, production is expected to increase soon to 10.0 million bpd.

We also expect supply to start rising soon due to a slowdown in demand which typically occurs at the end of the northern hemisphere winter season.

Furthermore, the technical chart pattern on the daily and weekly charts suggests the selling may be stronger than the buying at current price levels. Our charts indicate that WTI crude is vulnerable to $60.41 to $59.38 and Brent could revisit $65.52 to $64.53. These are value zones.

Ultimately, it all depends on whether the aggressive hedge funds want to continue to buy strength or if they prefer to buy in a value zone.