Oil Price Fundamental Daily Forecast – Pressured Early by U.S. Shale Drillers Rig Increase
U.S. West Texas Intermediate and international-benchmark Brent crude oil are trading lower early Monday in reaction to the news that U.S. shale drillers added more rigs last week. Despite the weakness, the markets remain inside Friday’s range, just slightly below their highest levels since mid-2015. The inside moves suggest investor indecision and impending volatility.
At 0651 GMT, January WTI crude oil is trading $57.95, down $0.40 or -0.70% and February Brent is at $63.43, down $0.30 or -0.47%.
According to energy services firm Baker Hughes, U.S. drillers added two oil rigs last week, bringing the total count up to 749, the highest level since September.
Forecast
Last week’s decision by OPEC to extend the production cuts of 1.8 million barrels per day (bpd) until the end of next year was largely priced into the market so I don’t expect to see much upside action unless the hedge funds are willing to buy strength at current price levels. Recently, prices have been supported by turmoil in the Middle East and the Keystone pipeline shutdown, however, those were short-term speculative events.
I think the main market driver over the near-term is going to be U.S. production. Gains could be capped and the hedge funds could decide to start selling if U.S. production continues to erode any of the gains earned from the OPEC-led production cuts.
According to recent data from the U.S. Energy Information Administration, U.S. output rose in September to 9.5 million bpd, the highest monthly output since 9.6 million bpd in April 2015. On an annual basis, U.S. output peaked at 9.6 million bpd in 1970.
Now that the extension is a done deal, the focus for traders will shift to U.S. production growth and the strength of global oil demand in 2018. These two factors are the main uncertainties.
Today’s price action in the WTI market is likely to be determined by trader reaction to a short-term retracement zone. Look for an upside bias to develop on a sustained move over $58.17 and for a downside bias to develop on a sustained move under $57.90.
For Brent traders, look for a bullish tone on a sustained move over $63.11 and a bearish tone on a sustained move under $62.71.
This article was originally posted on FX Empire
