Oil Price Fundamental Daily Forecast – Bearish if Focus Shifts to Oversupply Concerns
U.S. West Texas Intermediate and international-benchmark Brent crude oil futures are under pressure early Monday as investors shrugged off Friday’s bullish reaction to a “60 Minutes” segment on Saudi Arabia while shifting their focus to rising drilling activity in the United States, which pointed to further increases in output.
At 0707 GMT, May WTI crude oil is trading $62.17, down $0.24 or -0.38% and June Brent crude oil is at $65.75, down $0.30 or -0.45%.
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Today’s early price action is partly reversing some of Friday’s gains, which came on the back of concerns over rising tension in the Middle East. Despite the developing bearish supply/demand situation, the market is being underpinned by speculation that the U.S. will pull out of the Iran nuclear agreement.
Forecast
Prices will rise today, driven by aggressive short-covering, if the theme of the day returns to concerns over Middle East tensions.
Prices will weaken if traders shift their focus on the supply/demand situation. After enjoying several months of reports of a possible supply deficit, global oil markets are now facing the risk of returning oversupply.
One factor driving the theme of oversupply is an increase in the number of oil rigs. U.S. drillers added four oil rigs in the week to March 16, bringing the total count to 800, the weekly Baker Hughes drilling report said on Friday.
The current rig count is much higher than a year ago when 631 rigs were active as energy companies have continued to boost spending since mid-2016 when crude prices began recovering from a two-year crash.
Over the short-run, we could see a two-sided trade. However, prices could weaken over the long-run if the global markets flip from slight undersupply in 2017 and early this year into oversupply later in 2018.
Looking at the daily charts, Brent traders are eyeing the pivot at $65.52 for direction. WTI traders are watching the price action and reading the order flow at $61.62.