Oil Monthly Forecast – March 2018

The oil prices consolidated and traded within a tight range during the month of February and the same is expected in the month ahead

The oil prices were choppy for most of the period of February and we believe that this is going to continue in the short and medium term as well. The oil prices were caught in a tight range between the $60 and $66 regions for most of the month and the consolidation and ranging was the dominant theme for the month of February. The waxing and waning of the dollar strength had limited impact on the oil prices and hence the prices could not move out of the range.

Oil Prices Steady

The oil prices had been on a tearing bullish run over the 2 months before that as the oil producers had got together and managed to pull off a production cut by agreeing among themselves. Towards the middle of last year, the oil prices had plunged to the mid-40s region and this had led to fears among the oil producers as much of their economy depended on the oil prices. So, the plunging oil prices had a deep effect on their economy and to save the same, the oil producers, who generally are at loggerheads with each other over geopolitical issues, got together and agreed to production cuts.

These were not expected to last long as they seldom work in tandem but as the weeks and months rolled by, they managed to sustain the cuts working closely with each other. They also managed to rope in other non-OPEC producers like Russia and this not only helped to bring in a larger scale of the production cut, it also helped to boost the confidence of the investors that this time, things would be different and that the production cut was here to stay. This proved true as they managed to extend the cuts not only till the end of the year in 2017 but they have got together again and agreed to extend it till the end of 2018 as well.

This has helped the oil prices to rebound from the lows and continue to move higher over the last few months and the same was the case at the beginning of the year as well. But through this entire bull move, we have been forecasting that the region around $60 was likely to be the target of the bulls in the oil market. This was not only the bull target but this was also the price that the oil producers would be most comfortable with as it was not too high nor too low and this was the preferred price region for many in the market. That is the reason why we have been giving the $60 as the target.

Prices Likely to Stay Within Range

Once the target was achieved, the prices did overshoot it to around the $66 region, which is natural for any kind of bull trend but once that completed, there was not much for the bulls to look forward to. That is why we have been seeing the choppiness continue in the oil markets over the past 1 month. Looking ahead to the month of March, we expect the ranging and consolidation to continue in the coming month as well. It is believed that the oil price would henceforth be dominated by the incoming production and inventory data and with the bulls and the producers achieving the price region that they desire, we do not expect too much of a bullish or a bearish move in the month to come.

A precursor of the likely price action over the medium term was seen in the month of February where the prices were neither bullish nor bearish and we saw the prices try to make a breakout on either side but they were immediately met with some strong buying or selling on either side which pushed the prices back into range. This is the likely price action in the coming month of March as well.