Oil Price Fundamental Weekly Forecast – May Have to Correct to Attract Fresh Buyers

The fundamentals are mostly bullish at this time. Ongoing OPEC-led supply cuts are proving the longer-term support. One factor that could limit gains is rising U.S. production, which has jumped by a quarter since mid-2016 to 10.54 million barrels per day.
James Hyerczyk
Crude Oil
Crude Oil

U.S. West Texas Intermediate and international-benchmark Brent crude oil spiked to levels not seen since late 2014 early last week before retreating in response to profit-taking fueled by a stronger U.S. Dollar and negative comments from President Trump on Friday. Nonetheless, the market still managed to post solid gains for the week.

Last week, June WTI crude oil settled at $68.40, up $1.07 or +1.59% and June Brent crude oil closed at $74.06, up $1.48 or +2.04%.

Weekly June WTI Crude Oil

Weekly Recap

The previous week’s rally continued early Monday in response to a U.S.-led bombing of Syria, however, prices retreated after the move failed to escalate tensions in the area as well as lead to supply disruptions. In other words, traders reacted as if it was a one-time event.

The selling continued early Tuesday but crude oil prices mounted a strong rebound following the release of a bullish inventories report from the American Petroleum Institute.

WTI crude oil recovered all of its earlier loss for the week and spiked even higher on Wednesday after a U.S. government report showed U.S. crude stockpiles declined last week and as traders continued to price in the possibility of supply disruptions in several key oil-producing nations.

The U.S. Energy Information Administration reported U.S. commercial crude inventories dropped by 1.1 million barrels in the week-ending April 13. Stockpiles of gasoline also dropped by 3 million barrels, while distillate fuels including diesel declined by 3.1 million barrels. A surprised jump in gasoline demand also helped drive prices higher.

Bullish traders may into a wall of selling pressure on Thursday, forming a potentially bearish technical chart pattern on the daily chart. The sell-off was fueled by a rising U.S. Dollar and higher interest rates.

The selling continued early Friday after President Donald Trump suggested in a tweet that OPEC is keeping oil prices artificially high. Additionally, a weekly count of oil rigs operating in U.S. fields ticked up by 5 to a total of 820, oilfield services firm Baker Hughes reported on Friday. However, bullish traders were able to absorb the negative news and posted a higher close at the end of the session.

Weekly June Brent Crude Oil

Forecast

We’re bullish longer-term, but won’t be surprised by a short-term correction. However, we expect the hedge funds to re-enter on any reasonable break into support. Although the news is potentially bullish, the rally won’t last unless hedge fund buyers continue to come in to support the move. Speculative buying will not be enough to sustain the rally.

The fundamentals are mostly bullish at this time. Ongoing OPEC-led supply cuts are proving the longer-term support. This is leading to tightness in the crude oil market that could spread to products like gasoline and distillates. Speculative support is coming from the possible reimposition of sanctions against Iran that should lead to a cut in supply. Venezuela is experiencing huge problems that could also lead to diminished supply.

One factor that could limit gains is rising U.S. production, which has jumped by a quarter since mid-2016 to 10.54 million barrels per day. Look for U.S. production to continue to rise since the rig count, which rose last week, is expected to continue to increase along with prices.

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