Yahoo Finance Oil Price Fundamental Weekly Forecast – Dollar Volatility May Spread to Crude Oil
U.S. West Texas Intermediate and international-benchmark Brent crude oil futures surged last week after taking out the previous week’s potentially bearish closing price reversal top.
The markets continued to be supported by strong compliance with the OPEC-led plan to cut production, trim the global supply and stabilize prizes. Additionally, another drawdown in U.S. supply also helped to underpin crude oil. However, it was a weaker U.S. Dollar that helped propel the markets to their highest levels in three years.
March WTI crude oil settled at $66.14, up $0.63 or +0.96% and April Brent crude oil finished the week at $70.15, up $0.18 or +0.26%.
WTI crude oil futures topped $65 a barrel for the first time in more than three years on January 24 while Brent futures closed over the psychological $70 level.
Prices turned higher after the U.S. Energy Information Administration (EIA) reported that U.S. commercial crude stockpiles fell by 1.1 million barrels in the week through January 19. That put total inventories at 411.6 million barrels, the lowest since February 2015. Traders were looking for a drop of 1.6 million barrels, but the EIA report eased traders’ worries after the American Petroleum Institute report released on January 23 suggested that stocks rose 4.8 million barrels.
Gasoline inventories rose by 3.1 million barrels and stocks of distillate fuels, which include diesel, were up by 639,000 barrels.
On the supply side, U.S. oil production is expected to hit 10 million barrels per day soon, putting it on par with top exporter Saudi Arabia. Output has grown by more than 17 percent since mid-2016. Only Russia produces more, averaging 10.98 million bpd in 2017.
In other news, Baker Hughes on Friday reported that the number of active U.S. rigs drilling for oil climbed by 12 at 759 this week. The oil-rig count had fallen by 5 last week. The total active U.S. rig count, which includes oil and natural gas rigs, also rose by 11 to 947, according to Baker Hughes.
Forecast
The biggest influence on crude oil prices last week was the steep drop in the U.S. Dollar. The Greenback fell for the seventh straight week to a more than three-year low, making dollar-denominated crude oil a very attractive investment. This relationship is likely to continue this week. In other words, a weaker dollar will once again be supportive for crude oil prices.
Traders are starting to question the sustainability of the rally due to rising U.S. production and expectations of lower demand due to seasonality and refinery maintenance. Therefore, it is suggested that investors have in place an exit strategy just in case these expected headwinds start to encourage hedge fund selling.
Any weakness is not expected to derail the long-term outlook for the market. It will essentially alleviate the upside pressure.
Traders should continue to look for volatility in the crude oil market due to its sensitivity to the movement in the U.S. Dollar. If the dollar does rebound to the upside due to oversold conditions, crude oil could see a meaningful correction due to aggressive profit-taking.
Last week’s steep plunge in the dollar was a gift to crude oil bulls, but it’s not likely to last so be prepared to protect the downside.
This article was originally posted on FX Empire
