Oil Price Fundamental Daily Forecast – Rally Stalls in Thin Trade, but China Demand Outlook Offers Support
U.S. West Texas Intermediate and international-benchmark Brent crude oil futures are inching lower in a lackluster trade on Monday as below average liquidity due to the Lunar New Year holiday in East Asia kept many of the major players on the sidelines.
At 06:35 GMT, March WTI crude oil is trading $81.54, down $0.10 or -0.12% and March Brent crude oil is at $85.52, down $0.11 or -0.13%. On Friday, the United States Oil Fund ETF (USO) settled at $71.55, up $0.96 or +1.36%.
Both markets are coming off of strong weekly performances with WTI up 1.8% and Brent up 2.8% the week-ending Jan. 20.
Focus Remains on China Reopening
Although the rally is waning early Monday, it’s still hovering near a one-month high reached last week with bullish traders hanging on to their long positions in anticipation of stronger growth out of China.
Commodity analysts at ANZ said in a note last week that data shows a solid pick-up in travel in China after COVID-19 curbs were eased. They reported a 22% jump in road traffic congestion so far this month from a year earlier in the country’s 15 key cities.
The news is impressive enough to underpin oil prices, but in order to fuel a strong rally, investors would like to see a jump in factory output. This would be an even more significant development.
IEA Sees Tighter Oil Market if Chinese Economy Rebounds
International Energy Agency head Fatih Birol on Friday said energy markets could tighten this year if the Chinese economy rebounds the way financial institutions expect.
“I wouldn’t be too relaxed about the markets, and 2023 may well be a year where we see tighter markets than some colleagues may think,” Birol told Reuters, speaking on the sidelines of the World Economic Forum annual meeting in Davos.
Prices Could Jump Ahead of Sanctions on Russian Oil
Companies fearing a shortage of crude oil in the near future could start buying aggressively in anticipation of further sanctions on Russian oil.
The European Union and Group of Seven (G7) coalition will cap prices of Russian refined products starting on Feb. 5, in addition to their price cap on Russian crude in place since December and an EU embargo on imports of Russian crude by sea.
A rebound in China and an easing of rate hikes by the Federal Reserve are two reasons supporting crude oil prices. However, traders will be watching the COVID-19 numbers in China after the Lunar New Year holidays.
Prices could jump if the COVID numbers are low, but if they come in high or even lead to renewed restrictions in China then gains could be capped and prices could tumble.