Crude Oil

Oil Price Fundamental Daily Forecast – Jump in Rig Count Bearish, but Traders Focused on Dollar

Crude oil futures are trading mixed early Monday with U.S. West Texas Intermediate crude oil trading slightly higher and international-benchmark Brent working lower. Both futures contracts continue to hover around their three year highs reached late last week. A slightly better U.S. Dollar may be behind the early price action.

At 0724 GMT, March WTI crude oil futures are trading $66.22, up $0.08 or +0.12%. This is slightly below last week’s $66.66 high.

April Brent crude oil futures are trading $70.00, down $0.15 or -0.21%. Last week, it touched a high of $70.77.

Both futures contracts posted potentially bearish closing price reversal tops on the daily chart. This chart pattern doesn’t mean the trend is getting ready to turn lower, but it could mean the selling is greater than the buying at current price levels due to overbought conditions. This chart pattern often leads to the start of a 2 to 3 day correction.

Supporting the market today will be the same factors that have been driving it higher for nearly two months. These factors include compliance with the OPEC-led plan to cut production, trim the global supply glut and stabilize prices, strong demand and a weak U.S. Dollar.

Possible factors that could put a cap on the market are increasing U.S. production which could reach 10 million barrels per day very soon and expectations of lower demand due to seasonal refinery maintenance.

WTI Crude Oil
Daily March WTI Crude Oil

Forecast

The U.S. Dollar moved to the forefront as the key factor exerting the most upside pressure on crude oil prices. If last week’s surge to the upside was primarily driven by a weaker dollar, then a stronger dollar could certainly take it down this week.

The dollar is oversold according to some technical indicators. Additionally, the Euro is overextended to the upside and there are three economic events this week that could turn the dollar around. These include President Trump’s first State of the Union address in which he is likely to talk up the economy and could mention his desire for a stronger dollar, a hawkish U.S. Federal Reserve monetary policy statement and a stronger-than-expected U.S. Non-Farm Payrolls report on Friday.

Brent Crude
Daily April Brent Crude

Besides the direction of the U.S. Dollar, investors may react to the jump in the number of U.S. oil rigs. This will likely speed up U.S. production and we could hit 10 million barrels per day sooner than expected.

Finally, the hedge funds have to continue to be willing to buy strength, or the upside momentum will slow. This may spook a few of the weaker longs out of the market, leading to the start of a near-term correction.

Published by

James Hyerczyk

James A. Hyerczyk has worked as a fundamental and technical financial market analyst since 1982. His technical work features the pattern, price and time analysis techniques of W.D. Gann.