Oil Price Fundamental Daily Forecast – Decision Time for OPEC+: Cut Production or Increase Output?

U.S. West Texas Intermediate and international-benchmark Brent crude oil futures are edging higher shortly before the release of the U.S. Energy Information Administration (EIA) weekly inventories report at 15:30 GMT on Wednesday.

The markets are also trading inside yesterday’s trading range which indicates investor indecision and impending volatility. Uncertainty over the economic impact of the Omicron and an OPEC+ production meeting are the catalysts driving the rangebound trade.

At 14:30 GMT, January WTI crude oil is trading $68.31, up $2.13 or +3.22% and February Brent crude oil is at $71.34, up $2.11 or +3.05%.

OPEC+ Begins Two Days of Meetings

OPEC and its allies started two days of meetings on Wednesday. In what is probably its most important meeting in over a year, policymakers are going to have to decide whether to increase more production or cutback output amid heightened volatility in crude prices and worries over demand destruction because of the Omicron coronavirus variant.

Ministers from the Organization of the Petroleum Exporting Countries began Wednesday’s talks at 13:15 GMT. That will be followed on Thursday by a meeting of ministers from the broader OPEC+ alliance, which includes OPEC, Russia and others.

Shortly after the OPEC talks began, a delegate told Reuters that the group was not discussing changes to output policy for now.

Russia and Saudi Arabia, the biggest OPEC+ producers, had said ahead of this week’s meetings that there was no need for a knee-jerk reaction to amend policy, Reuters reported.

Iraqi minister Ihsan Abdul Jabbar said he expected OPEC+ to extend existing output policy in the short-term, Iraq’s state news agency reported.

Daily Forecast

The market is likely to remain on hold until the OPEC+ production decision on Thursday. This means there is likely to be little reaction to today’s EIA inventories report.

Today’s EIA report is expected to show a 1.5 million barrel crude oil inventory draw down.

Late Tuesday, the American Petroleum Institute (API) reported an inventory draw in crude oil. This week, the API estimated the inventory draw for crude oil to be 747,000 barrels. However, analyst expectations for the week were for a larger draw of 1.667-million barrels for the week.

Just to put the impact of the Omicron COVID-19 variant in perspective, “Another wave of lockdowns could result in up to 3 million bpd of oil demand lost in the first quarter of 2022,” said Louise Dickson, senior oil markets analyst at Rystad Energy.