Advertisement
Advertisement

Oil Price Fundamental Weekly Forecast – Bearish Factors Piling Up

By:
James Hyerczyk
Published: Feb 11, 2018, 14:19 UTC

The downside momentum generated by last week’s steep sell-off suggests there may be more pressure coming. Money managers currently hold about 1 billion barrels of crude oil.

Crude Oil

U.S. West Texas Intermediate and Brent crude oil futures plunged last week as several investors took profits after a prolonged rally. A series of events was behind the selling pressure including external factors like U.S. Treasury yields and stock market volatility.

March WTI crude oil futures settled at $59.20, down $6.25 or -9.55%. April Brent crude oil futures closed at $62.79, down $5.79 or -8.44%.

WTI Crude Oil
Weekly March WTI Crude Oil

However, most of the selling pressure is being generated by worries over increasing output and rising global supplies. In addition to concerns about rising supplies, investors are also concerned about the stronger dollar’s impact on foreign demand for U.S. oil and lower demand due to seasonal maintenance.

At the end of the week, WTI was trading lower for the year and at its lowest level since December 22. Brent was also lower for the year, testing its lowest level since December 14.

One factor encouraging investors to begin shedding their long positions was the U.S. Energy Information Administration’s weekly inventories report.

According to the EIA, U.S. commercial crude inventories rose by 1.9 million barrels to 420.3 million in the week through February 2. Traders were looking for a 3 million barrel build. Stockpiles of gasoline and distillate fuels such as diesel also rose by 3.4 million barrels and 3.9 million barrels respectively, the EIA reported, well-above trader expectations.

Brent Crude Oil
Weekly April Brent Crude Oil

In other bearish news, the EIA forecast U.S. production will average 10.6 million barrels a day this year, enough to continue surpassing output from Saudi Arabia, until recently the world’s second-biggest producer. In 2019 EIA sees American output at 11.2 million barrels, enough to rival top producer Russia.

Additionally, sellers were influenced by the news that OPEC member Iran announced plans to increase production within the next four years by at least 700,000 barrels a day.

Finally on Friday, the markets extended their losses following a report from Baker Hughes that showed the U.S. oil rig count rose by 26 rigs to 791, the highest total since April 2015.

Forecast

The downside momentum generated by last week’s steep sell-off suggests there may be more pressure coming. However, the move may have been a little overdone to the downside, which means we may see some consolidation or short-covering before we see another attempt to break WTI and Brent crude oil further.

Money managers currently hold about 1 billion barrels of crude oil. If these hedge fund managers are forced to liquidate their positions, or they decide to start taking profits due a change in the fundamentals and market conditions then prices could trade back into the low $50 area over the near-term.

We’re also going to be watching the impact of rising interest rates and a firmer U.S. Dollar on crude oil prices. These factors could have a negative effect on future demand.

About the Author

James is a Florida-based technical analyst, market researcher, educator and trader with 35+ years of experience. He is an expert in the area of patterns, price and time analysis as it applies to futures, Forex, and stocks.

Did you find this article useful?

Advertisement