Oil Price Fundamental Daily Forecast – Rally Continues Backed by Aggressive Hedge Fund Buying, Technical Momentum

U.S. West Texas Intermediate and international-benchmark Brent crude oil futures are trading higher shortly before the U.S. opening on Thursday. The buying was strong enough to drive the Brent contract to $71.00 a barrel for the first time since 2014.

At 1137 GMT, March WTI crude oil is at $66.06, up $0.45 or +0.69% and April Brent is trading $70.33, up $0.31 or +0.44%.

Over the long-run, the markets should continue to be supported by almost full-compliance with the OPEC-led plan to cut production, trim the global supply and stabilize prices. However, the current surge in prices is being generated by a record-breaking run of declines in U.S. crude inventories and a weaker U.S. Dollar.

On Wednesday, the U.S. Energy Information Administration reported that U.S. crude inventories fell for a record 10^th straight week to the lowest since February 2015. Also supporting oil was the weaker U.S. Dollar which hit its lowest level since December 2014 against a basket of currencies.

Forecast

Aggressive hedge fund buying and increasing upside momentum are driving the markets higher. Therefore, the rally is likely to continue over the short-run because a trend in motion tends to continue until another force comes along to stop the rally. At this time, other than a pair of former tops from 2015 at $66.16 and $66.89, there are no obvious forces working against the WTI contract, for example. In fact, taking out $66.89 with another round of aggressive buying could drive prices into at least $68.37.

On the downside, a move under $64.11 will indicate weakness and taking out $62.78 will change the main trend to down.

If the continuous fall in U.S. oil inventories and the prolonged weakness in the U.S. Dollar are the market drivers at this time then the rally is likely to slow or stop when one or both of these factors are taken out of the equation.

Additionally, bullish traders continue to keep in mind that output of U.S. shale oil is growing, as higher prices encourage more investment in expanding supplies. According to the EIA, U.S. crude oil production is expected to surpass 10 million barrels per day (bpd) in February.