Oil Price Fundamental Daily Forecast – Tuesday’s Price Surge Was Helped by Extremely Low Volume

U.S. West Texas Intermediate and international-benchmark Brent crude oil futures jumped to two-and-a-half year highs on Tuesday. The spike in prices was triggered by news of an explosion on a Libyan crude pipeline.

On Tuesday, February WTI crude oil settled at $59.97, up $1.50 or +2.57% and March Brent closed at $66.46, up $1.73 or +2.67%.

According to reports, armed men blew up a pipeline pumping crude oil to the port of Es Sider on Tuesday, cutting Libya’s output by up to 100,000 barrels per day (bpd), according to military and energy sources.

Additionally, the state-run National Oil Corporation (NOC) said in a statement that output had been reduced by 70,000 to 100,000 bpd. The cause of the blast was unclear, it added.

In other news, Iraq’s oil minister said on Monday there would be a balance between supply and demand by the first quarter, leading to a boost in prices. Global oil inventories have decreased to an acceptable level, he added.

Forecast

Crude oil prices are drifting lower early Wednesday. There was no follow-through to the upside after yesterday’s sharp rise in prices.

Tuesday’s steep price increase has to be taken with a grain of salt because of the low holiday volume. During this last week of the year, the major players tend to take off, leaving it up to amateurs to move prices. According to exchange data, just 50,000 contracts of front-month Brent crude futures changed hands on Tuesday, well below the typical daily average of more than 250,000 contracts.

Brent futures popped when buy stops were taken out over $64.92. The strength of the rally will be determined by whether buyers come in to support the market on a pullback into this level.

WTI futures surged to the upside when buy stops were triggered over three recent tops at $58.60, $58.90 and $58.99. Any of these three tops could become new support. If the market is really concerned about the impact of the event in Libya on supply then buyers will come in to defend the trend. If the market considers it a one-and-done event then look for a pull-back in prices.