Oil Price Fundamental Daily Forecast – Early Buyers Whipsawed by Renewed Supply Concerns

U.S. West Texas Intermediate and international-benchmark Brent crude oil futures are trading lower late in the session on Monday after giving back all of its earlier gains. The whipsaw price action is no surprise since the week after Christmas and before the New Year’s holiday is notoriously known for extremely low volume and wicked volatility.

At 19:30 GMT, February WTI crude oil is trading $47.67, down $0.56 or -1.16% and February Brent crude oil is at $50.90, down $0.39 or -0.76%.

The early price surge was fueled by optimism over the U.S. stimulus package and the start of a European vaccination campaign. The move came to a screeching halt on concerns over weaker demand and the prospect of higher OPEC+ output.

Prices rose sharply in the overnight session after U.S. President Donald Trump backed down from a threat to block a $2.3 trillion package to counteract a coronavirus-driven economic downturn. The stimulus issue may not be over, however, as Democrats on Monday will try to push through larger $2,000 relief payments. The plan is likely to be killed by the Republican-led Senate.

Meanwhile, Europe launched a mass COVID-19 vaccination drive on Sunday with pensioners and medics lining up to get the first shots to ward off a pandemic that has crippled economies and claimed more than 1.7 million lives worldwide.

Despite the optimism from the vaccination rollout and new U.S. fiscal stimulus, the crude oil market still faces headwinds over the near-to-medium term. Although oil has recovered from historic lows hit this year as the pandemic hammered fuel consumption, a new variant of the virus has emerged in the United Kingdom. This has led to movement restrictions being reimposed, hitting near-term demand and weighing on prices.

A January 4 meeting of the Organization of the Petroleum Exporting Countries and allies including Russia, a group known as OPEC+, also looms over the market. The group is tapering record oil output cuts made this year to support the market. OPEC+ is set to boost output by 500,000 barrels per day in January and Russia supports another increase of the same amount in February.

Russia expects to support an increase in oil production by OPEC+, of another 500,000 barrels per day (bpd) from February at next month’s summit of the leading global oil producers, Russian Deputy Prime Minister Alexander Novak said.

“If the situation stays normal and stable, we will support this position (increase by 500,000 bpd),” Novak told reporters at a briefing held in the government’s headquarters.