Prior to the beginning of last week we forecasted that the price of Brent crude would trade between $48.50 and $50.65. The forecast was based on our expectations that oil traders were still not committing to a more bullish sentiment, with traders reducing their short positions, but not adding to their long positions. Furthermore, the supply/demand fundamentals still remain a hindrance to the breakout of the price of Brent crude.
Oil supply continues to be robust with OPEC pushing out barrels, even with talk of some type of freeze, while US production continues to show signs of bouncing back. The actual price movement of Brent crude aligned well with our forecast. The price of Brent crude started the week at $50.88 then fell to $49.16 on Monday and bounced to about $49.50 before closing the week at $49.92. We also forecasted that the Brent-WTI differential would trade between $1.25 and $2.00 with respect to the October contract.
In actuality, the Brent-WTI differential began the week at $1.77 and then started widening on Wednesday before closing the week at $2.28. The inventory report from the Energy Information Agency (EIA) provided support for the Brent-WTI widening in the second half of the week. The report indicated that during the previous week that inventories of crude increased by 2.50 million barrels.
For the upcoming week we are expecting that the price of Brent crude oil will move toward $51.00 after weakness early in the week. We are also expecting that the Brent-WTI differential will trade between $1.50 and $2.50 with respect to the November contract.
For more supporting rationale for this forecast, visit StratasAdvisors.com.
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