Oil Price Fundamental Daily Forecast – Traders Not Impressed With New China Stimulus; Await EIA Report

U.S. West Texas Intermediate and international-benchmark Brent crude oil futures are trading mixed on Thursday, shortly before the regular session opening and the release of a weekly government inventories report. Earlier in the session, both futures contracts hit one-month highs, but the rallies stalled after testing technical resistance levels.

Three factors contributed to today’s earlier strength and Wednesday’s price surge. They were fresh stimulus from China, a drop in new coronavirus cases at the epicenter of the outbreak and supply concerns in Venezuela and Libya.

At 11:19 GMT, April WTI crude oil is trading $53.57, up $0.08 or +0.15% and April Brent crude oil is at $58.96, down $0.16 or -0.27%.

Gains may have been capped by another surge in U.S. crude oil inventories after a private industry forecast showed an unexpected weekly build.

China Cuts Benchmark Lending Rate

China’s more to cut its benchmark lending rate on Thursday helped ease worries about slowing demand in the world’s second-biggest oil consumer and largest crude oil importer. The move came as no surprise since it was already priced into the market. Earlier in the week, China’s central bank made moves that set up today’s rate cut.

Furthermore, the reaction may have been muted because it takes time for the change to circulate through the economy. Secondly, the number of factories open for business is still low so it’s difficult to see demand stabilizing at this time.

New Coronavirus Deaths Hit Three Week Low

China reported 349 new confirmed cases in Hubei province on Wednesday, the lowest in more than three weeks, while the death toll rose by 108, down from 132 the previous day.

Although this indicator is important, there are those skeptics who believe we still don’t know enough about the virus to call it contained. Some believe it could be in hibernation, waiting to reemerge when people go back to work.

Supply Concerns Reemerge

On Wednesday the U.S. sanctioned a trading unit of Russian oil giant Rosneft for its ties with Venezuela’s state-run PDVSA, a move which could choke the OPEC member’s crude exports even further.

At the same time, conflict in Libya that has led to a blockade of its ports and oilfields shows no signs of a resolution.

Cutting supply is nearly always bullish for crude oil prices. In this case, I think the moves are underpinning prices rather than driving them higher. The main driver of the price action in my opinion remains speculation that OPEC and its allies will cut production further when they meet in March. The reaction in the market could come sooner if Russia says it will go along with the plan.

American Petroleum Institute Weekly Inventories Report

The API reported late Wednesday that crude oil inventories rose unexpectedly by 4.16-million barrels during the week-ending February 14, compared to analyst expectations of a 2.494-million barrel build in inventory.

The API also reported a draw of 2.67 million barrels of gasoline for the week-ending February 14. Analysts were looking for a 435,000-barrel build for the week.

Distillate inventories were down by 2.63 million barrels for the week, while Cushing inventories rose by 4.21 million barrels.

Daily Forecast

The U.S. Energy Information Administration (EIA) will release its weekly inventories report at 16:00 GMT on Thursday. It is expected to show a 3.3 million barrel build.

Based on the reaction to the API numbers, I don’t expect much of a reaction to the EIA data if there is a larger-than-expected build. However, if the EIA number meets expectations or comes in lower than estimated then look for prices to surge higher.