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Fundamental Forecast for Oil: Bearish

Oil Talking Points

  • Crude appears to be on the cusp of a larger pullback as it snaps the range-bound price action from the start of July
  • Oil prices may exhibit a more bearish behavior over the coming days as they initiate a series of lower highs & lows

With the Organization of the Petroleum Exporting Countries (OPEC) on track to boost production, signs of growing output may fuel a near-term correction in crude especially as fresh updates from the U.S. Energy Information Administration (EIA) show an unexpected increase in oil inventories.

Oil Forecast: Bearish Series Unfolds as Monthly Opening Range Snaps

Crude stockpiles increased 1245K in the week ending June 29 to defy expectations for a 5000K contraction, with weekly field production of oil holding steady at the yearly-high of 10,900K b/d for the fourth consecutive week.

Indications for greater supply may continue to produce headwinds for crude as OPEC and its allies unwind their production-cutting measures, and recent price action brings the downside targets back on the radar as the monthly opening range snaps, with crude starting to carve a fresh series of lower highs & lows.

Oil Daily Chart

Oil Forecast: Bearish Series Unfolds as Monthly Opening Range Snaps

The advance from the June-low ($63.62) unravels following the failed attempts to close above the $75.20 (78.6% expansion) to $75.90 (78.6% expansion) region, with the Relative Strength Index (RSI) reflecting a similar dynamic as the oscillator appears to be flattening out just ahead of overbought territory. Nevertheless, need a closing price $72.70 (50% expansion) to $72.80 (100% expansion) region to open up the downside targets, with the next downside hurdle coming in around $71.00 (50% expansion) to $71.20 (38.2% expansion) followed by the $70.40 (78.6% expansion) region.

For more in-depth analysis, check out the Q3 Forecast for Oil

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--- Written by David Song, Currency Analyst

Follow me on Twitter at @DavidJSong.