Oil Price Fundamental Daily Forecast – Speculators Betting Worst of Fuel Demand Crisis May Be Over

The API reported a larger than anticipated crude oil inventory build of 6-million barrels for the week-ending February 7. Traders were looking for a 2.987-million barrel build in inventory.
James Hyerczyk

U.S. West Texas Intermediate and international-benchmark Brent crude oil futures are trading higher on Wednesday as a slowdown in new China coronavirus cases eases, offsetting a potentially bearish industry group inventories report.

Traders are still waiting for a decision from Russia regarding additional OPEC+ production cuts, however, the price action suggests investors are betting on Russia going along with the recommendation to make the cuts.

At 07:46 GMT, March WTI crude oil is trading $50.69, up $0.74 or +1.48% and April Brent crude oil is at $55.12, up $1.11 or +2.06%.

Corona Virus Update

Traders are reacting to a report showing a slowdown in the number of new coronavirus cases in China, and comments from Chinese officials that the epidemic could be over by April.

According to data through Tuesday, the growth rate of new coronavirus cases in China has slowed to the lowest since January 30. Still, international experts remained cautious over forecasting when the outbreak might reach a peak.

Travel restrictions to and from China and quarantines have cut fuel usage. The two biggest Chinese refiners have said they will reduce their processing by about 940,000 barrels per day (bpd) as a result of the consumption drop, or about 7% of their 2019 processing runs.

The U.S. Energy Information Administration (EIA) on Tuesday cut its global oil demand growth forecast for this year by 310,000 bpd as the virus outbreak crimps oil consumption in China.

China’s foremost medical adviser on the coronavirus outbreak, Zhong Nanshan, said on Tuesday numbers of new cases were falling in some provinces and forecast the epidemic would peak this month.

“I hope this outbreak or this event may be over in something like April,” Zhong, and epidemiologist whose previous forecast of an earlier peak turned out to be premature, told Reuters.

American Petroleum Institute Weekly Inventories Report

The API reported a larger than anticipated crude oil inventory build of 6-million barrels for the week-ending February 7. Traders were looking for a 2.987-million barrel build in inventory.

The API this week also reported a build of 1.1 million barrels of gasoline for the week-ending February 7, after last week’s 1.96-million-barrel build. Traders were looking for a 546,000-barrel build for the week.

Distillate inventories were down by 2.3 million barrels for the week, compared to last week’s 1.78-million barrel draw, while Cushing inventories rose by 1.3 million barrels.

Daily Forecast

The U.S. Energy Information Administration (EIA) will release its weekly inventories report at 15:30 GMT. Traders are looking for a 3.1 million barrel build. A bigger than expected build could limit gains, or turn the market lower.

The current rally is being fueled by short-covering as traders bet on coronavirus cases subsiding, leading to a rise in demand. In other words, they are betting that the worst is over.

In the meantime, traders are still waiting for Russia to decide whether to cut production or not. If they pass then prices could retest last week’s lows. If they go along with the plan then prices could spike higher.

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