Oil Fundamental Forecast – December 20, 2016

Crude oil prices see-sawed between higher and lower for the session before finally settling lower for the session. The trade was tentative with traders seemingly trying to hold the markets in a range throughout the session. Volume was light on this week before the Christmas holiday. Trading in the oil markets are likely to get quieter as the week progresses. However, this does make the market vulnerable to volatility spikes.

The market seemed to be under the influence of outside markets like the U.S. Dollar. Early in the session it rallied because the dollar was weaker, but then prices retreated after the Greenback strengthened into the close.

March West Texas Intermediate Crude ran into retracement zone resistance at $54.17 to $54.66, posting its high for the day at $54.47. This price action suggests a tired market after the bulls spiked prices to a 16-month high last week.

Some technical factors suggest the market may be topping.

Forecast

Pressuring the market this week is likely to be the U.S. Energy Information Administration’s weekly inventories report. This is because investors are worried about the global supply glut.

Increasing daily U.S. production and a rising rig count are also major concerns for the bulls.

Supporting the market are expectations that OPEC and other non-OPEC producers will move forward with their plans to cut production starting in January. Traders turned optimistic that the plan may work when last week, Kuwait informed its customers that it was cutting supply starting next month. It actually said it would reduce production more than expected.

Over the near-term, the crude oil market is likely to trade rangebound. It is getting pressure from the oversupply situation, but support from the handful of countries that have already pledged to reduce supply.

Crude could rally if additional countries announce their reduction plans. However, gains will be limited if the U.S. supply continues to rise.