April 24, 2018

FXTM, Market Outlook on WTI Crude Oil for Q2 2018

Oil bulls tamed and subdued by U.S. Shale.

This article is originally referred from FXTM Quarterly Market Forecast.

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The first trading quarter of 2018 was wildly unpredictable and explosively volatile for oil markets, as investors juggled with a selection of key fundamental themes driving the commodity.

A sense of optimism over OPEC’s supply cuts rebalancing markets, geopolitical risk, and supply disruptions heavily supported oil prices during the early parts of Q1.

The commodity experienced severe losses in February as relentless growth in U.S. Shale output obstructed OPEC’s efforts to rebalance markets.

Although prices eventually recovered in March amid speculation of rising global demand, lingering oversupply concerns ensured gains were limited below $66.50.

There is a strong suspicion that OPEC members remain fearful of higher oil prices encouraging other producers to increase production, and this could prompt the cartel to extend the current production cut agreement beyond summer 2018.

As we head into the second trading quarter, oil is likely to remain buoyed by speculation of global demand rising, but pressured by soaring production from U.S. Shale.

Market optimism over solid economic growth in the U.S. and around the world may support oil prices, with geopolitical tensions between Iran and Saudi Arabia complementing the upside.

However, rising trade tensions between the United States and China are likely to continue souring risk appetite and may consequently weigh on oil markets.

If rising U.S. inventories continue to complicate the efforts from OPEC to rebalance the markets, OPEC could be forced to implement its previously promised “extraordinary measures” during June’s meeting.

The argument for further buying demand is likely based on improving demand and global growth.

However, risks associated with the deal falling apart in the event of a Saudi–Iran dispute could imbue sellers with a renewed sense of confidence.

As OPEC continues to relinquish market share amid rising U.S. production, will the cartel be forced to take action sooner than anticipated?

It will be interesting to see what additional steps OPEC executes to confront the oversupply glut without handing over more market share to U.S. Shale.

Technical Analysis on WTI Crude Oil

In regards to the technical picture, WTI Crude may be displaying early signs of exhaustion on the weekly and monthly timeframe.

The fact that prices have failed to break above the $66.50 resistance level on repeated occasions suggests that a potential ceiling could be in place.

Taking a look at the daily charts, WTI is turning increasingly bearish with pricing sinking back towards $62 during the first trading week of Q2.

A daily close below $62 could encourage a decline lower towards $60. If bears are able to secure a weekly close under $60, WTI has scope to dip towards $58.50 and $57.00, respectively.

Zooming out on the monthly timeframe, the commodity remains in a bullish trend as weak fundamentals are likely to limit upside gains.

A solid monthly close under $60 could invite a steep decline towards $56.00 and $52.00.

On the other hand, if bulls are unexpectedly able to conquer $66.50, then prices could challenge $70,00.

Original Source: FXTM Quarterly Market Forecast

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