Oil Price Fundamental Daily Forecast – Pressured by Uncertainty Over China’s COVID Policy, New Flare Ups

U.S. West Texas Intermediate and international-benchmark Brent crude oil futures are edging lower on Tuesday after posting a potentially bearish closing price reversal top the previous session.

Weighing on the market are recession concerns and worsening COVID-19 outbreaks in China. Both events are sparking fears of lower fuel demand, offsetting the bullishness being generated by tightening supply.

Crude oil is also being pressured by a stronger greenback that is reducing demand for the dollar-driven asset. Traders are also beginning to question unverified reports that China is considering relaxing its COVID restrictions in light of the current surge in new cases.

At 07:57 GMT, December WTI crude oil is trading $91.53, down $0.26 or -0.28% and January Brent crude oil is at $97.75, down $0.17 or -0.17%. On Monday, the United States Oil Fund ETF (USO) settled at $76.56, down $0.26 or -0.34%.

China’s COVID Woes Move Back to Forefront

Late last week, a crude oil rally gained traction on speculation China may relax its rigid COVID restrictions sooner than expected. The story fueling the move has never been verified. Furthermore, prices even rose after Chinese health officials over the weekend reaffirmed China’s commitment to its strict zero-COVID policy.

In related news, recent data showed the country’s exports and imports unexpectedly contracted in October. Meanwhile, new coronavirus cases surged in Guangzhou and other Chinese cities, official data showed on Tuesday. The country is now reporting that the global manufacturing hub is fighting its worst flare-up ever, testing its ability to avoid a Shanghai-style lockdown.

In my opinion, the news is creating uncertainty and when there is uncertainty investors sell. They may even move to the sidelines until there is some clarity.

This is not a complete disaster, however, with speculative longs only expected to trim a little off the top. In the meantime, the market is expected to remain underpinned by tightening supply caused by the OPEC+ production cuts and the upcoming European Union embargo on Russian oil.

Choppy Price Action Ahead Due to US Election, Consumer Inflation Data

WTI and Brent crude oil could face a few days of volatile price action due to Tuesday’s election and Thursday’s consumer inflation report.

Crude oil could be impacted positively if the Republicans gain control of Congress in Washington. They tend to be pro-business and against any taxes that could hurt the oil industry.

Thursday’s inflation data could have an impact on the greenback which could drive the next move in dollar-denominated crude oil. Data that increases the odds of aggressive rate hikes by the Fed would be bullish for the dollar and could cap gains in crude oil.

Private Industry, Government Inventories Data on Tap

U.S. crude oil stocks were expected to have risen by about 1.1 million barrels the week-ending November 4, a preliminary Reuters poll showed on Monday. This would alleviate some of the upside pressure caused by demand concerns.

The American Petroleum Institute (API) is scheduled to release its report at 21:30 on Tuesday. The Energy Information Administration (EIA) will release its findings at 15:30 GMT on Wednesday.