Fundamental Forecast forUSOIL:Bullish

Talking Points:

The fundamental picture that supports the Oil market appears to be firing on all cylinders. On Friday afternoon, Fed Vice Chair Stanley Fischer said in a speech, “Almost no indicator has come in badly in the last three months.” Over the last week, we’ve seen the USD strengthen as the market begins to price in the full anticipated three rate hikes for 2017 from the Federal Reserve and start to price in 4 hikes in 2018. The stronger USD seems to have shaken the Oil market, but as we’ll discuss in the technical section below, the price remains above long-term support. Late Friday afternoon, after Janet Yellen’s speech the USD gave back some of its gains for the week, which further lifted Oil back to the 2017 average price of $53.05/bbl.

The Oil market finds itself in a unique spot of the commodity landscape of Q117. A worthy development that came to light this week as price continues to oscillate above $50/bbl was that WTI May $50 puts and April $52 puts were actively traded contracts. An increase in open interest in puts shows that traders favor downside into the expiration months. However, to balance that view in a similar fashion of the sideways price action of Oil, the next two most active WTI options were Dec. $54.50 and $57 calls providing a longer-term Bullish bias.

Friday brought news of another rise in U.S. Oil Rigs. Friday’s rise to 609 was the 7th straight rise, which is not surprising as price stability helps to bring stability to NPV projections bought forward by companies who have mineral rights in cost effective regions.