Oil Price Fundamental Daily Forecast – Supported by Stimulus Hopes, Capped by Concerns Over New Restrictions

U.S. West Texas Intermediate and international-benchmark Brent crude oil futures are edging higher on Tuesday on expectations for rising fuel demand on the hopes that the United States may expand their pandemic aid payment and final Brexit deal is set to stabilize trade between Europe and the U.K.

Rising investor risk appetite is also helping to underpin crude oil prices as the U.S. House of Representatives voted to raise pandemic relief payments to $2,000 from $600. However, the Senate still needs to vote on the measure.

At 12:29 GMT, February WTI crude oil futures are trading $48.16, up $0.54 or +1.13% and February Brent crude oil is at $51.46, up $0.60 or +1.18%.

In addition to the hopes for increased future demand, buyers may also be banking on friendly news on the supply front. U.S. crude oil stockpiles are expected to have declined last week, while refined products inventories likely rose, a preliminary Reuters poll ahead of this week’s data showed on Monday.

Five analysts polled by Reuters estimated, on average, that crude stocks likely fell by 2.1 million barrels in the week to December 25. The American Petroleum Institute (API) reports its figures late Tuesday, and the U.S. Energy Information Administration (EIA) reports on Wednesday.

Buyers Facing Headwinds

Concerns over coronavirus lockdowns are capping gains, making them major headwinds for buyers.

A new variant of the virus in the United Kingdom has led to the reimposition of movement restrictions, hitting near-term demand and weighing on prices, while hospitalizations and infections have surged in parts of Europe and Africa.

Traders could also be looking ahead to next week’s OPEC+ meeting on January 4. OPEC+ is currently tapering record oil output cuts made this year to support the market. The group is set to boost output by 500,000 barrels per day (bpd) in January and Russia supports another increase of the same amount in February.

Russian Deputy Prime Minister Alexander Novak said on Monday he expected there would be 5 million to 6 million bpd additional oil demand in 2021, which has not fully recovered from the pandemic.

Daily Forecast

The stimulus bill will be the main focus today before traders shift their interest to the API report at 22:30 GMT. Both could be market moving events especially because of the low volume. Moves could be exaggerated.

According to the latest data from the government, money managers continue to bet on the bullish side of the market. The U.S. Commodity Futures Trading Commission (CFTC) reported a jump in net-long U.S. crude futures and option positions in the week to December 21.

The speculator group raised its combined futures and options position in New York and London by 4,455 contracts to 325,787 during the period.

Because of the “Herd Theory” this could actually develop into a bearish indicator. If one hedge fund starts to sell, they all could follow suit.