Oil Price Fundamental Daily Forecast – OPEC+ Could Cut Production by Additional 1M barrels; EIA Report on Tap

U.S. West Texas Intermediate and international-benchmark Brent crude oil futures are trading slightly better on Wednesday shortly before the regular session opening and the release of the latest weekly inventories data from the U.S. Energy Information Administration (EIA). This follows yesterday’s mixed performance which was fueled by heightened stock market volatility.

At 10:42 GMT, April WTI crude oil is trading $47.79, up $0.61 or +1.30% and May Brent crude oil is at $52.46, up $0.60 or +1.16%.

Today’s slight recovery is being fueled by yesterday’s surprise 50-basis point rate cut by the U.S. Federal Reserve and major producer progress towards sealing an agreement to implement deeper output cuts aimed at offsetting the slump in demand caused by the global coronavirus outbreak.

Fed Makes Surprise Rate Cut

The U.S. Federal Reserve made an unexpected 50-basis point rate cut two weeks ahead of its scheduled meeting due to the “evolving risks to economic activity” posed by the coronavirus. It was the central banks first such emergency action coming in between scheduled meetings since the 2008 financial crisis.

OPEC+ Edges Closer to Making Additional Production Cuts

A panel of OPEC and major producers recommended cutting oil output by an extra 1 million barrels per day (bpd) on Tuesday. The recommendation may mean that Russia and Saudi Arabia, the two biggest producers in the OPEC+ group, are close to a deal to support prices.

That would be in addition to 2.1 million bpd in current output cuts that include 1.7 million bpd in curbs by OPEC+ and other voluntary reductions by Saudi Arabia, the world’s biggest exporter. The group is set to meet formally in Vienna on March 5-6.

Analysts Cut Demand, Price Forecasts

Goldman Sachs sees a 2.1 million bpd loss in global demand during the first half alone. It also cut its Brent price forecast to $45 a barrel in April, while expecting Brent to gradually recover to $60 a barrel by year-end.

Morgan Stanley predicts China’s 2020 oil demand growth would be close to zero and that demand elsewhere may weaken because of the virus. Its analysts also cut its second-quarter 2020 Brent price forecast to $55 per barrel and its WTI outlook to $50.

American Petroleum Institute Weekly Inventories Report

The API estimated on Tuesday a smaller than anticipated crude oil inventory build of 1.7 million barrels for the week ending February 28. Analysts were looking for a 3.333-million barrel build in inventory.

The API also reported a draw of 3.9 million barrels of gasoline for the week-ending February 28, after last week’s 74,000-barrel build. Analysts were looking for a 2.095-million-barrel draw for the week.

Distillate inventories were down by 1.7 million barrels for the week, compared to last week’s 706,000-barrel draw, while Cushing inventories fell by 1.35 million barrels.

Daily Forecast

We expect the Fed rate cut and expectations of additional production cuts from OPEC+ to underpin prices. However, since we don’t know the extent of the demand loss, we expect gains to capped since the OPEC+ production cuts are likely to fall short of this figure.

The EIA weekly inventories report, due to be released at 15:30 GMT, is expected to show a 2.8 million barrel build.