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.
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
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.