WTI Oil Forecast: Consolidation with positive positive bias seen

WTI oil prices fell to $56.00 yesterday as expected on the back of overbought conditions and bearish EIA report. The API report only added to the bearish tone in prices.

As of writing, WTI is down 0.86 percent or 50 cents at $55.20/barrel.

EIA report - key points (Source: EIA)

  • A "new normal" might have moved from $50/bbl to $60/bbl.
  • The agency reduced our demand numbers by 50 kb/d for 2017 and by 190 kb/d for 2018.
  • Using a scenario whereby current levels of OPEC production are maintained, the oil market faces a difficult challenge in 1Q18 with supply expected to exceed demand by 0.6 mb/d followed by another, smaller, surplus of 0.2 mb/d in 2Q18.
  • Non-OPEC supply is expected to rise by 0.7 mb/d in 2017 and 1.4 mb/d next year, led by higher US output.

The third point says it all... for oil to remain above $60.00, the OPEC would have to extend the output cut deal beyond March 2018. Else, as stated by the EIA, the market will remain oversupplied next year and thus prices could fall back to the previous normal level of $50.00.

As for today, WTI oil is seen consolidating with a positive bias.

Daily chart

The above chart shows-

  • Bears are struggling to keep the prices below the Feb. 21 high of $55.06.
  • 5-day MA and 10-day have adopted bearish bias, although bearish crossover hasn't happened yet.
  • The RSI is trending lower, but the ascending trend line is still intact.
  • The trendline sloping upwards from the low of Oct. 9 low and Oct. 20 low.

4-hour chart

Here we see-

  • The RSI is oversold
  • Despite breaching the trendline (sloping upwards from the Oct. 20 low and Oct. 26 low), the bears are struggling to cut through the ascending 4-hour 100-MA.

View

  • A minor technical recovery to $55.80-$56.00 levels cannot be ruled out, although it is likely to be short-lived. Prices are more likely to consolidate around $55.00 levels.
  • A big drawdown in the US inventories could push prices higher to $56.30-$56.40 (5-day MA and 10-day MA).
  • On the downside, oil could test the support at $54.35 (support offered by the trendline sloping upwards from the Oct. 9 low and Oct. 20 low).  

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