Oil Fundamental Forecast – April 24, 2017
Crude oil futures are expected to open steady early Monday. Technical factors may play a role in today’s market as investors are going to have to decide to continue to react to bearish fundamental data or technically oversold conditions.
As far as June West Texas Intermediate Crude Oil is concerned, technically, the main trend is up, but momentum is clearly to the downside. The main range is $47.58 to $54.14. Its retracement zone is $50.86 to $50.09. On Friday, the market closed below this zone. This helped contribute to the market’s downside bias.
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From a technical perspective, overcoming $50.09 will indicate the return of buyers. The buying may be only strong enough to hold the market in a range. However, if the market is hit with surprise positive news, we could see a drive over $50.86. This will likely be caused by aggressive short-covering rather than aggressive counter-trend buyers.
June WTI crude oil will remain bearish despite the uptrend if sellers come in to defend $50.09. Holding the market below this level will mean traders are preparing to go after the last March bottom at $47.58.
Fundamentally, the major concern is increasing U.S. production. Oil field services giant Baker Hughes reported on Friday another increase in the number of producing rigs. This means that production is likely to continue to rise.
We could see some short-covering, or the selling pressure could lighten if Saudi Arabia continues to talk about extending the program to reduce output, however, investors are getting a little tired of this type of talk. Besides it doesn’t mean much on April 24 when the next major OPEC meeting is scheduled to take place until May 25.
Traders are also starting to believe that an extension will have a limited effect on the global supply glut. Even if OPEC cuts further, traders feel that U.S. producers will just step into the market openings left by the cartel.
We’re looking for weakness today as long as June WTI crude remains under $50.09. Our initial downside objective today is $48.94. Overcoming $50.09 will likely lead to a short-covering rally. A stronger U.S. Dollar could pressure crude oil today if it leads to lower demand.