Yahoo Finance Oil Price Fundamental Weekly Forecast – Pressure Building for Short-Term Pullback
U.S. West Texas Intermediate and internationally-favored Brent crude oil futures posted their first weekly loss in six weeks as investors raised concerns over Russia’s participation in extending the OPEC-led program to cut production, forecasts for lower demand and rising U.S. production.
January WTI Crude Oil futures settled at $56.71, down $0.27 or -0.47% and February Brent Crude Oil futures finished the week at $62.55, down $0.86 or -1.36%.
The major factor supporting crude oil at this time is expectations that OPEC and the other major oil producers will agree to extend their deal to limit output beyond the March 2018. This story has been driving prices higher for several months.
There is enough evidence to conclude that the OPEC-led plan to limit production is working. However, it is moving too slowly to achieve its goal to cut supply below the five-year average in a timely manner. Therefore, it feels it needs to extend the deal beyond the March 2018 deadline. This is likely to take place when the cartel meets on November 30.
The rally has also been supported at times by improving oil demand and escalating tensions in the Middle East that threatened to disrupt production. Furthermore, the impact of Hurricanes Harvey and Irma also skewed the refinery numbers enough to underpin prices.
Strong hedge and commodity fund buying has also supported prices with these two entities holding near record long positions at a two-year high.
On the bearish side, earlier this week, the International Energy Agency lowered its outlook for demand growth in both 2017 and 2018. The IEA reduced its growth forecast by 100,000 barrels a day for each year, projecting that oil markets will remain oversupplied in the first half of 2018.
The energy group concluded in its monthly oil report that global demand will struggle to sop up rising output by producers outside of OPEC, particularly from the United States.
Finally, U.S. drillers are pumping near all-time highs and this trend is likely to continue into 2018.
In other news, the number of rigs operating in U.S. oil fields was unchanged, after posting the largest rise since June in the previous week, oilfield services firm Baker Hughes reported.
Forecast
With the supply and demand stories offsetting each other, the next major move in the crude oil market will likely be decided by the hedge funds. Recent numbers from the Commodity Futures Trading Commission showed us that hedge funds have raised their bullish bets on U.S. crude to the highest level since March, while bearish positions fell to a nearly seven-month low.
Something has to give and contrary theory tells me that the long investors are vulnerable. If you follow Herd Theory, then you know that if one hedge funds start to liquidate aggressively, they’ll all start liquidating.
I don’t think there is going to be enough buying between now and the OPEC meeting to drive prices through the recent high, therefore, I’m favoring a short-term break. This may be necessary to shake the tree a little to alleviate extremely overbought conditions.
This article was originally posted on FX Empire
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