Oil Price Fundamental Weekly Forecast – Rally Could Slow as Markets Approach Technical Resistance, Balance Points

U.S. West Texas Intermediate and international-benchmark Brent crude oil futures hit their highest levels since late November last week. The markets were primarily supported by the OPEC-led production cuts and the U.S. sanctions against Venezuelan exports, which are helping to trim the excess global supply. An extra boost to prices was provided by optimism that a trade deal between the United States and China would help revive the world’s second largest economy, raising hopes for increased demand. Helping to limit gains were concerns over rising U.S. production.

Last week, April WTI crude oil settled at $57.26, up $1.28 or +2.29% and April Brent crude oil closed at $67.25, up $1.03 or +1.53%.

The positive tone in the markets continued last week as OPEC and its allies continued to push supply toward a balance point. Saudi Energy Minister Khalid al-Falih said last week he hoped the oil market would be balanced by April and that there would be no gap in supplies due to the U.S. sanctions on OPEC members Iran and Venezuela.

The OPEC-led plan received additional support after Nigeria reiterated its desire to reduce supply along with other OPEC members. A spokesman for President Muhammadu Bhuari said in a statement that Nigeria is willing to reduce output to help secure higher prices. Nigeria made the announcement after being called out by Saudi Arabia because of its failure to adhere to the OPEC agreement to reduce production. In January, Nigeria pumped well above the quota it previously agreed to.

Although the OPEC-led supply cuts are helping to trim the global supply overhang and stabilize prices, the current rally is being slowed by expectations of inventory builds in the United States amid surging shale production to record highs.

According to the U.S. Energy Information Administration (EIA), U.S. crude oil production reached 12 million barrels per day (bpd) for the first time last week.

Rising production is also leading to a larger inventory build. According to the EIA, U.S. commercial crude oil inventories rose by 3.7 million barrels to 454.5 million barrels in the week-ending February 15.

In other news that could underpin prices early next week, U.S. energy firms this week cut the number of oil rigs operating for the first time in three weeks. Drillers cut four oil rigs in the week to February 22, bringing the total count down to 853, General Electric Co.’s Baker Hughes energy services firm said in its closely followed report on Friday.

For the month, the rig count fell by nine. That was the first time drillers removed rigs for three months in a row since October 2017.

Weekly Forecast

This week, the market is likely to continue to be supported by the OPEC-led production cuts as well as the sanctions against Iran. Prices could receive a further boost in reaction to the U.S. oil drillers’ production cuts. However, this is not likely to last too long as the forecasts continue to point toward rising U.S. production.

According to the U.S. Energy Information Administration, U.S. oil output from seven major shale formations is expected to rise 84,000 barrels per day (bpd) in March to a record of about 8.4 million bpd.

The wildcard remains a U.S.-China trade deal. Reaching a deal could be bullish for crude oil prices if it leads to increased future demand. However, the rally is likely to be short-lived if the oil market hits its balance point.

Furthermore, the weekly WTI chart indicates heavy resistance approaching at $59.51 to $63.40. Brent’s target is $67.77 to $71.79. Sellers could re-emerge on a test of these areas.