Oil Price Fundamental Daily Forecast – Sluggish Trade as China Demand, EU Russian Oil Embargo Worries Weigh

U.S. West Texas Intermediate and international-benchmark Brent crude oil futures are edging higher on Friday as below-average post-holiday volatility kept a lid on prices. Nonetheless, the markets are poised to finish lower in the wake of lingering worries about Chinese demand and the inabilities by Western powers to reach a price cap agreement on Russian oil.

At 13:30 GMT, January WTI crude oil futures are trading $79.12, up $1.16 or +1.49% and January Brent crude oil is at $85.93, up $0.81 or +0.955. On Wednesday, the United States Oil Fund ETF (USO) settled at $67.42, down $2.56 or -3.66%.

More Demand Woes Expected as China Widens COVID-19 Curbs

China is implementing stricter demand curbs on Friday as the country reported another record high of daily infections just weeks after hopes had been raised of easing measures.

The resurgence of COVID cases in China, with 32,295 new local infections recorded for Thursday as numerous cities report outbreaks, has prompted widespread lockdowns and other curbs on movement and business, as well as pushback, according to Reuters.

China’s COVID response is taking a mounting toll on the world’s second-largest economy, and on Friday its central bank made a widely-anticipated move of support, cutting the amount of cash that banks must hold as reserves. This releases 500 billion Yuan ($69.8 billion) in long-term liquidity, Reuters wrote.

The aggressive lockdowns is starting to hit fuel demand, with traffic drifting down and implied oil demand around 1 million barrels per day lower than average, an ANZ note showed.

Disappointing G7 Oil Price Cap Proposal

The Group of Seven (G7) nations’ proposed price cap of $65-$70 a barrel on Russian oil would have little immediate impact on Moscow’s revenues, as it is broadly in line with what Asian buyers are already paying, five industry sources with direct knowledge of the purchases said on Wednesday, Reuters reported.

The goal of the price cap is to deprive Russian President Vladimir Putin of revenue to fund the military offensive in Ukraine, with causing major disruption to global oil markets that would drive energy prices higher, according to Reuters.

The G7, including the United States, as well as the whole of the European Union and Australia, are planning to implement the price cap on sea-borne exports of Russian oil on December 5.

Daily Forecast

Volume is currently light and expected to soften throughout the session due to an early close. Additionally, trading is expected to remain cautious ahead of an agreement on the price cap, due to come into effect on Dec. 5 when an EU ban on Russian crude kicks off, and ahead of the next meeting of the Organization of the Petroleum Exporting Countries and allies on December 4.