Oil Price Fundamental Daily Forecast – Trader Reaction to Retracement Level Will Set the Tone for the Session

U.S. West Texas Intermediate crude oil and international benchmark Brent crude oil finished marginally higher on Monday, boosted by short-covering, profit-taking and aggressive buying by counter-trend bargain-hunters.

August WTI crude oil settled at $43.38, up $0.37 or +0.86% and September Brent crude oil futures ended the session at $46.04, up $0.29 or +0.63%.

There has been no major change in the fundamentals, but given the oversold technical conditions and the relatively cheap prices, the market is ripe for a bounce to the upside. Some traders are saying the move is being fueled by end of the quarter “book squaring”. If this is the case then sellers should return to the market once the event is completed.

In other news, according to the U.S. Commodity Futures Trading Commission, investors in U.S. crude futures and options increased their short positions, or bets against rising prices. When this occurs, the market is often at or approaching technically oversold conditions. This makes the market ripe for a short-covering rally because new sellers are reluctant to short at low prices.

Forecast

With the crude oil market trading at or near multi-month lows and last week’s inventories numbers fully-priced into the market, bottom-pickers and profit-takers have free reign until this week’s reports are released.

Late Tuesday, investors will get the opportunity to react to the latest figures from the American Petroleum Institute (API) and on Wednesday, investors will shift their focus to the U.S. Energy Information Administration’s inventory data for the week-ended June 23.

Despite the short-term friendly outlook for prices, the key fundamentals strongly suggest that gains will be capped and the markets will remain in a position to do further damage to the charts over the short-term.

With the fundamentals playing almost no role in the current rally, investors are likely to react to technical factors a little more than usual today. The direction of the August WTI crude oil market will be determined by trader reaction to a pivot price at $43.67.

Crossing to the strong side of $43.67 will give the market an upside bias. The inability to overcome or sustain a rally over this price will indicate that sellers are coming in to defend the downtrend.