Crude oil prices weakened on Thursday after hedging pressure increased as the U.S. West Texas Intermediate futures contract neared the $50.00 level. Concern about high crude supplies from OPEC and other non-OPEC producers offset the U.S. government report from Wednesday which showed record U.S. gasoline demand.

Strong demand from the U.S. has been lifting prices for about a month, but the market has been capped by high production from OPEC.

September West Texas Intermediate crude oil futures settled at $49.03, down $0.56 or -1.13%. Internationally-favored October Brent crude oil ended the session at $52.01, down $0.35 or -0.67%.

Forecast

The mixed fundamentals seems to be indicating we’re headed towards a rangebound trade. Looking at the charts, the range WTI range is $52.38 to $42.27. Its mid-point is $47.33. This is likely the next downside target.

Given the offsetting news, I think the market may have to pull-back into $47.33 while investors reassess the situation. With the hedge funds holding long positions, I don’t think prices will collapse unless there is unexpected bearish news. However, without fresh bullish news and having been burned in the past, I don’t think hedge funds will be chasing this market higher either. This makes a test of the mid-point reasonable.

Supporting are expectations for a rangebound trade are comments from the National Australia Bank, BMI Research and Goldman Sachs.

The NAB said, “Our view of the oil market is that a major rally is unlikely in 2017.” In reference to Brent crude oil the bank said, “Absent further production cuts or a sustained uptick in demand, prices are likely to remain in the low to mid $50s for the remainder of the year.”

BMI Research said, “Of the major projects sanctioned by the big five oil companies over H1 2017, there has been a clear breakeven target price of $40 per barrel or lower at offshore oil projects.”

Finally, U.S. investment bank Goldman Sachs said this week that the oil industry had successfully adapted to oil prices around $50 per barrel.

In my opinion, the charts and the comments from other analysts support my idea for a range bound trade. Unless there is a major change in production, I think hedgers will continue to come in at $50 and hedge funds will continue to support the market if it nears $40.00.

This article was originally posted on FX Empire

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