Oil Price Fundamental Weekly Forecast – Driven by Concerns Over Global Supply Glut

U.S. West Texas Intermediate and internationally-favored Brent crude oil closed lower last week. Sellers were primarily driven by concerns over the global supply glut and doubts about OPEC’s ability to cut production enough to trim the excess supply and stabilize prices.

August WTI crude oil finished the week at $44.97, down $1.10 or -2.39% and September Brent crude oil settled at $47.63, down $0.90 or -1.85%.

Prices stabilized early in the week on reports that the hedge and commodity fund managers were building large long positions, betting on the start of a rally in the wake of the sharp sell-off from May 24.

Prices became unstable at mid-week, however, after the release of a bearish government report. According to the EIA, U.S. stockpiles fell by 1.7 million barrels, less than the expected decline of 2.7 million barrels. The EIA also reported that gasoline stockpiles rose by 2.1 million barrels in the week through June 9, versus expectations for a 457,000 barrel drop.

In other news, the U.S. government’s Energy Information Administration raised its prediction for domestic output growth in 2017 to 460,000 bpd from a predicted decline of 80,000 bpd in December.

The International Energy Agency said it expects oil supplies next year to outpace demand despite consumption hitting 100 million bpd for the first time.

On Friday, Houston oilfield services company Baker Hughes said the number of rigs exploring for oil and natural gas in the U.S. rose by six last week to 933. The U.S. rig count peaked at 4,530 in 1981. It bottomed out in May of 2016 at 404.

Forecast

Given the current fundamentals and downside momentum at the end of the week, barring any unexpected news which would cause a short-covering rally, crude oil is likely to start the week under pressure.

Factors that could cause short-term counter-trend rallies are technically oversold conditions, problems in Nigeria and Libya, and major changes in the EIA inventories reports. A drop in crude oil inventories will be supportive, but the biggest upside response is likely to come from a major drawdown in gasoline stocks.

Another jump in the rig count could lead to early selling. The first target for September Brent crude oil traders is $46.59. August WTI crude oil traders have a target of $41.98.

Friday’s price action suggests counter-trend WTI investors are defending $44.45. This is the trigger point for an acceleration to the downside. Watch the price action and read the order flow at this price because sellers are either going to take out this price with conviction and trigger a steep plunge, or the market is going to reverse to the upside over this price, in an effort to shake out some of the weaker short-sellers.