Oil Price Fundamental Daily Forecast – Rising COVID Cases Capping Gains Ahead of API Supply ReportOil traders will be watching the economic numbers from China over the next several weeks to determine if the lockdowns are having an impact on demand.
U.S. West Texas Intermediate and international benchmark Brent crude oil futures are inching higher early Tuesday with a slightly weaker U.S. Dollar providing some support for the dollar-denominated asset. Speculation that tighter supply due to a drop in U.S. inventories is also said to be offsetting concerns over climbing coronavirus cases globally.
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Providing most of the price support is the announcement that Saudi Arabia will cut output by an extra 1 million barrels per day (bpd) in February and March to stop inventories from building up. Additional support is being delivered by the anticipation of Tuesday’s American Petroleum Institute’s (API) and Wednesday’s U.S. Energy Information Administration’s (EIA) weekly inventories reports. The latest U.S. oil supply reports are expected to show crude stocks fell for a fifth straight week.
Rising Worldwide Coronavirus Cases Leading to Increased Demand Concerns
Chinese authorities introduced new curbs in areas surrounding Beijing on Tuesday, putting 4.9 million residents under lockdown. Japan is expected to widen a state of emergency beyond Tokyo as virus cases surge.
Local authorities in regions near Beijing are stepping up restrictions on social activity as new coronavirus cases grow. Langfang city, located about 1.5 hours south of downtown Beijing, told its nearly 5 million residents on Tuesday to stay home for the next seven days. The city is in Hebei, the same province as Shijiazhuang, a city of 11 million people that locked down late last week after a spike in coronavirus cases.
“The worsening coronavirus situation will impact economic activity, and markets may need to temper their expectations for strong pent-up consumption demand in the coming LNY holidays in mid-February,” Ting Lu, chief China economist at Nomura, said in a note Monday.
Crude oil traders will be watching the economic numbers from China over the next several weeks to determine if the lockdowns are having an impact on demand.
Worldwide COVID-19 cases surpassed 90 million on Monday, according to a Reuters tally, as nations around the globe scramble to procure vaccines and continue to extend or reinstate lockdowns to fight new coronavirus variants.
Brent could rise to $65 per barrel by summer 2021, Goldman Sachs said, driven by Saudi cuts and the implications of a shift in power to the Democrats in the United States. The Wall Street investment bank had previously predicted oil would hit $65 by year-end. Keep in mind the Goldman Sachs usually comes in on the high-end of price predictions.
At 21:30 GMT, traders will get the opportunity to react to the latest inventories data from the API. It is expected to show a drop in U.S. crude stockpiles. Analysts expect crude inventories to fall by 2.7 million barrels for a fifth straight week of declines.
For a look at all of today’s economic events, check out our economic calendar.