Oil Fundamental Forecast – March 17, 2017

U.S. West Texas Intermediate and international Brent crude are lower and in an extremely tight range early Friday. The price action suggests impending volatility and investor indecision. Despite last week’s steep sell-off, this week’s response by investors suggests the market may be going through a transition period as the bearish investors battle it out with the bullish speculators.

On one hand, the bullish speculators are placing high hopes on a weaker dollar and OPEC-lead output cuts to underpin prices. Bearish investors are saying that rallies will continue to be capped as long as U.S. crude remains near record levels.

Prices are being supported this week by the U.S. Energy Information Administration’s weekly inventories data which showed supply decreased for the first time in nine weeks, dropping 237,000 barrels from a record high.

The Fed’s less-hawkish monetary policy statement has been pressuring the U.S. Dollar since Wednesday. This seems to be having a positive influence on the dollar-denominated crude oil market because it may be helping to increase foreign demand.

Earlier in the week, prices were supported by comments from the International Energy Agency (EIA). It said that although global inventories rose in January, the agency predicts the oil market could be in deficit by 500,000 barrels per day in the first half of 2017.

The comments by the IEA are particularly interesting because they strongly suggest that OPEC could start putting a dent in the global supply glut if it were to continue its program to curb production for several months beyond the original June deadline.

On Thursday, OPEC member Kuwait said this week that it was ready to prolong the deal to reduce supply. But OPEC heavyweights Saudi Arabia, the world’s biggest oil exporter, has said it is too early to consider an extension.

The price action on Friday is likely to be influenced by the U.S. Dollar, the Baker Hughes rig count and any new developments regarding an extension of OPEC’s plan to reduce production, trim inventory and stabilize prices.