Oil Price Fundamental Daily Forecast – COVID-Related Issues in China Encouraging Longs to Trim Positions

U.S. West Texas intermediate and international benchmark Brent crude oil futures are trading sharply lower shortly after the regular session opening on Friday on fresh worries that new pandemic restrictions in China will drive down fuel demand by the world’s biggest oil importer.

At 13:13 GMT, March WTI crude oil futures are trading $51.57, down $1.56 or -2.94% and March Brent crude oil is at $54.65, down $1.45 or -2.58%.

Traders also continue to react to Wednesday’s bearish American Petroleum Institute’s (API) weekly inventories report that showed an unexpected build. Analysts had predicted a drawdown. Later today at 16:00 GMT, the Energy Information Administration’s weekly inventories report is expected to show a 1.2 million barrel drawdown.

China’s Capital Initiates Mass Virus Testing

Beijing launched mass COVID-19 testing in some areas on Friday and Shanghai was testing all hospital staff as China battles its worst outbreak of the disease since March, with families fretting over Lunar New Year Reunion plans amid new curbs.

Mainland China reported a slight decline in new daily COVID-19 cases on Friday – 103 from 144 infections a day earlier.

Of the new cases, 94 were local transmissions, Heilongjiang province in the northeast reported 47 new cases, while Shanghai reported six new cases and the capital, Beijing, reported three new cases.

Long queues formed in some districts in Beijing, where mass testing was launched following several consecutive days of new cases. City officials said there were some “leaks” in epidemic control in some rural areas, with inadequate adherence to rules on wearing masks, social distancing and temperature checks.

Tens of millions of people have been under some kind of lockdown in northern cities amid worries that undetected infections could spread quickly during the Lunar New Year holiday in mid-February.

Daily Forecast

OPEC+ may be able to manipulate supply, but it can’t help create demand. Speculators were fully aware that the coronavirus pandemic was worsening, but they felt a sense of immunity with the rollout of the vaccines. Today’s price action suggests investors are lightening up on the long side as an out-of-control breakout in China could bring the global economic recovery to a standstill.

Although the markets are likely to remain supported by the OPEC+ production cuts and Saudi Arabia’s voluntary cuts, prices were too far ahead of demand, which means they have to come down over the short-run.

Traders are now awaiting official oil inventory data from the EIA. We could see the selling extend further if the government report shows a build instead of a 1.2 million barrel draw.

For a look at all of today’s economic events, check out our economic calendar.