Oil Price Fundamental Daily Forecast – Higher as API Draw Offsets China Demand Worries Ahead of EIA Data

U.S. West Texas Intermediate and international-benchmark Brent crude oil futures are trading higher on Tuesday but inside the previous day’s range, suggesting investor indecision and impending volatility.

The catalyst behind the early session move was a private inventories report showing a larger-than-expected U.S. crude drawdown last week. The surprise news is outweighing concerns about lower fuel demand from China amid more restrictive COVID-19 curbs.

At 09:10 GMT, January WTI crude oil is trading $81.55, up $0.60 or +0.74% and January Brent crude oil is at $88.99, up $0.63 or +0.71%. On Tuesday, the United States Oil Fund ETF (USO) settled at $69.97, up $0.94 or +1.36%.

Traders Bracing for Volatility

Crude oil traders are bracing for additional volatility due to uncertainty over OPEC policy. The volatility started on Monday when Saudi Arabian Energy Minister Prince Abdulaziz bin Salman was quoted by state news agency SPA as denying a Wall Street Journal report that said OPEC was considering boosting output.

Saudi Arabia said OPEC+ was sticking with output cuts and could take further steps to balance the market.

Comments from other OPEC+ members reinforced the remarks from Saudi Arabia’s energy minister. The United Arab Emirates, another big OPEC producer, denied it was holding talks on changing the latest OPEC+ agreement, while Kuwait said there were no such talks Algeria said an “improbable” revision of the OPEC+ agreement was not discussed. Comments from Iraq and Algeria were also supportive.

OPEC, Russia and other allies, known as OPEC+, meet on Dec. 4, a day before the start of European and G7 measures in response to Russia’s invasion of Ukraine, which could support the market.

API Reports Another Larger-Than-Expected Crude Draw

U.S. crude oil inventories fell by another 4.8 million barrels, according to the American Petroleum Institute (API). The data released late Tuesday came in well above analyst estimates calling for a smaller 2.2 million barrel draw for the week-ending November 18.

The draw in commercial crude oil inventories came even as the Department of Energy released 1.6 million barrels from the Strategic Petroleum Reserves. SPR inventories now stand at just 390.5 million barrels.

The API also reported a draw in gasoline inventories this week of 400,000 barrels for the week ending November 18, after the previous week’s 1.690 million-barrel build.

Distillate stocks saw a build this week of 1.1 million barrels, on top of last week’s 850,000-barrel increase.

China COVID Problem Deepen

Crude oil demand concerns are likely to remain at the forefront amid reports of an escalation of China’s COVID infections. In the last few days, the mainland China daily COVID case count has climbed to around or more than 28,000 – near levels seen in April during a stringent lockdown in Shanghai, according to CNBC calculations of Wind Information data.

“China might have already passed the point of no return, as it’s unlikely to achieve zero COVID again without another Shanghai-style hard lockdown,” Macquarie’s Chief China Economist Larry Hu said in a report Tuesday.

In GDP terms, nearly 20% of China’s economy was negatively affected by COVID controls as of Monday, close to the high of 21.2% recorded in mid-April during Shanghai’s lockdown, Nomura’s Chief China Economist Ting Lu said, citing the firm’s model.

Daily Forecast

Traders should prepare for the possibility of heightened volatility on Wednesday due to the below-average pre-holiday volume and the release of the U.S. government’s weekly inventories report at 15:30 GMT.

Traders are looking for the U.S. Energy Information Administration’s Weekly Inventories report to show a 2.6 million barrel drawdown of crude oil.