Oil Price Fundamental Daily Forecast – Sideways-to-Lower Trade Tied to Uncertainty Over EU Embargo, Price Caps

U.S. West Texas Intermediate and international-benchmark Brent crude oil futures are nearly flat on Friday, putting the markets in a position to post a second straight week of losses.

Driving crude oil prices lower this week have been reports of huge Russian supply hitting the market and bigger than expected U.S. crude oil, gasoline and distillates data. Meanwhile, the choppy trade in the U.S. Dollar may be keeping some buyers on the sidelines.

Uncertainty over the fuel demand recovery in China and the impact of an EU embargo and price cap on Russian oil products could also be keeping buyers out of the market.

At 12:39 GMT, March WTI crude oil futures are trading $75.73, down $0.15 or -0.20% and April Brent crude oil is at $82.10, down $0.07 or -0.09%. On Thursday, the United States Oil Fund ETF (USO) settled at $66.56, down $0.80 or -1.19%.

WTI is on course for a 4% drop and Brent is poised to register a more than 5% decline this week.

Traders Assessing Potential Impact of EU Actions Against Russia

Investors are eyeing developments on the Feb. 5 European Union (EU) ban on Russian refined products, with EU countries seeking a deal on Friday to set price caps for Russian oil products.

The Kremlin on Friday said that the EU embargo on Russia’s refined oil products would lead to further imbalance global energy markets.

The Dollar and Central Bank Rate Hikes

The volatility in the greenback could spread to the crude oil market since the asset is a dollar-denominated commodity. A stronger U.S. currency can curb oil demand because it usually makes the dollar-priced commodity more expensive for those holding other currencies.

Traders will be looking at today’s U.S. Non-Farm Payrolls report to determine whether the Fed stops raising rates in March or if it is forced to keep hiking rates into perhaps June in order to loosen the jobs market.

Higher rates could dampen demand for crude oil.

Short-Term Outlook

Technically, the main trend is still up, however, the chart pattern suggests investors may be looking to reaffirm support before moving higher.

Fundamentally, “Oil prices are likely to tread water until it becomes clear how dynamically Chinese demand will recover or what the consequences of the EU embargo and price caps will be,” Commerzbank said.