FxWirePro: Oil price might decline to $43 per barrel

As the hope of a long-term bull market in oil fades fast, big hedge funds are reportedly scaling back their long positions. We at FxWirePro have previously warned of the possibility as speculative positions reached record high earlier this year. Oil bulls are reevaluating their long positions as the production in the United States is increasing faster than expected. Since the OPEC deal in November, the US production has increased by more than half a million barrels per day offsetting OPEC’s production cut of 1.2 million barrels per day. Last week’s data from Baker Hughes showed that active oil rigs in the United States increased for the 14th consecutive week. Meanwhile, the oil market has also been trying to return to contango. Currently, the market is in backwardation but that is just about 11 cents per barrel, not strong enough to burn the inventories fast.

The oil price suffered a 7 percent selloff last week and price dipped below $50 per barrel. It is important to note that the recent weakness in the dollar, in the aftermath of the first round of French election has failed to keep the oil price buoyant.

We now suspect that the price of oil would decline further and reach as low as $43 per barrel. The stop loss for this trade should be around $55 per barrel. WTI is currently trading at $49.1 per barrel.