Fundamental Forecast for USOIL: Neutral

Talking Points:

After a 12% drop at the beginning of February, Crude Oil Bulls are left with a dilemma. The fundamental bullish argument has not changed. However, the price shock that saw the price drop from ~$8/bbl has left more questions than answers.

The main argument of the Crude Bears has been the increased US Production weakening and potentially nullifying the efforts of OPEC. However, when looked at the OECD Crude Oil demand forecasts along with China import data, it’s difficult to ignore that more supply is what the market is demanding.

Recently, Saudi Arabia Energy Minister Khalid Al-Falih told reporters in Riyadh that if necessary, OPEC would push supply cuts to the point of presenting a small supply shortage. In short, as OPEC looks to be reaching their goal of getting supply to the five-year average, they remain hesitance to quitting too soon. The argument is that stockpile data may be inaccurate so OPEC will, “stay the course and make sure that inventories are where the industry needs them.”

Again, there are no guarantees in markets, but the key drivers of fundamental information from the global benchmark, OPEC and their production of Brent Crude seem to be working in favor of the Bulls, not the Bears of Oil.

The technical focus on WTI Crude Oil is currently at $63.50. While oil markets, alongside other risk assets, were arguably overheated as of January 25, the recent spike low that gave way to a bounce of lower high remains the technical line in the sand. An ability for WTI Crude Oil to break and close above $63.50 would align and favor a strong bounce.