Oil Price Fundamental Daily Forecast – Lower as Rate Hike Fears, Russian Supply Offset Middle East Tensions

U.S. West Texas Intermediate and international-benchmark Brent crude oil futures are flat on Monday after recovering from early session weakness. Gains are likely being capped by looming rate hikes by major central banks and signs of strong Russian exports.

Losses are being limited, however, by rising Middle East tension over a drone attack in Iran and hopes of higher China demand tied to the lifting of COVID-19 restrictions.

At 11:26 GMT, March WTI crude oil futures are trading $79.51, down $0.17 or -0.21% and March Brent crude oil is at $86.59, down $0.07 or -0.08%. On Friday, the United States Oil Fund ETF (USO) settled at $69.52, down $1.41 or -1.99%.

Threat of Rising Interest Rates Weighing on Sentiment

Investors expect the Federal Reserve to raise rates by 25 basis points on Wednesday, followed the day after by half-point hikes from the Bank of England and European Central Bank. The moves are expected to slow their respective economies, which could trigger a drop in demand for crude oil.

Russian Supply Larger than Expected

WTI and Brent crude oil also came under pressure from indications of strong Russian supply, despite an EU ban and G7 price cap imposed over its invasion of Ukraine. Both oil benchmarks last week saw their first weekly loss in three.

Reuters is reporting that Urals and KEBCO crude oil loadings from Russia’s Baltic port of Ust-Luga over Feb. 1-10 may rise to 1.0 million tonnes from 0.9 million in the plan for the same period of January. This is up 11% on a daily basis, Reuters calculations showed.

Additionally, oil loadings from Russia’s Baltic ports are set to rise by 50% this month from December as sellers try to meet strong demand in Asia and benefit from rising global energy prices, traders said and Reuters calculations showed.

Traders on Alert for Possible Supply Disruption in Middle East

Oil was up earlier in the session on Monday amid tensions in the Middle East following a drone attack in oil producer Iran. However, traders aren’t sure what’s happening in Iran including any escalation or potential disruption to supply.

Hopes of a Rise in Chinese Demand

Over the weekend, the world’s biggest crude importer pledged to promote a consumption recovery which would support demand.

During the week-long Lunar New Year holiday that ended on Friday, consumption increased 12.2% from the same period last year, the tax authority said on Saturday, reflecting a rebound after the relaxing of some of the world’s tightest COVID-19 curbs.

Short-Term Outlook

Traders are playing the waiting game over the tensions in the Middle East. So far, they aren’t certain if the situation will escalate into a supply disruption. If it did, then prices would spike higher.