Oil Price Fundamental Daily Forecast – Traders Shrug Off Bleak Outlook from IMF

U.S. West Texas Intermediate and international-benchmark Brent crude oil futures are edging higher on Tuesday, recovering from a setback fueled by weaker-than-expected data from China. Sellers were also responding to a bearish warning about the global economy from the head of the International Monetary Fund (IMF). Meanwhile, OPEC and its allies are holding their monthly policy meeting.

At 08:47 GMT, March WTI crude oil is trading $80.94, up $0.49 or +0.61% and March Brent crude oil is at $86.42, up $0.51 or +0.59%. Last Friday, the United States Oil Fund ETF (USO) settled at $70.13, up $1.60 or +2.33%.

China December Factory Activity Extends Declines on COVID Surge – Caixin PMI

China’s factory activity shrank at a sharper pace in December as surging COVID-19 infections disrupted production and weighed on demand after Beijing largely removed anti-virus curbs, a private sector survey showed on Tuesday.

The Caixin/Markit manufacturing purchasing managers’ index (PMI) fell to 49.0 in December from 49.4 in November. The index has stayed below the 50-point that separates growth from contraction for five straight months.

The reading was the lowest since September but beat analysts’ forecast of 48.8 in a Reuters poll.

In other news, China’s larger official PMI survey on Saturday showed a much sharper decline, with the activity index falling to a near three-year low. The Caixin survey focuses on smaller, export-oriented firms.

Global Economy Faces Tougher Year in 2023, IMF’s Georgieva Warns

For much of the global economy, 2023 is going to be a tough year as the main engines of global growth – the United States, Europe and China – all experience weakening activity, the head of the International Monetary Fund said on Sunday.

The new year is going to be “tougher than the year we leave behind,” IMF Managing Director Kristalina Georgieva said on the CBS Sunday morning news program “Face the Nation.”

“Why? Because the three big economies – the U.S., EU and China – are all slowing down simultaneously,” she said.

Short-Term Outlook

Traders have their eyes on OPEC+ this week, but don’t expect any changes to current policy.

In 2022, OPEC+ largely ignored calls from the U.S. and other key consumers to increase oil supply more aggressively this year amid higher prices and supply concerns. Consequently, the group’s decision to reduce output targets by 2 million barrels per day from November 2022 until the end of 2023 has been a particular sore spot for the Americans.

In hindsight, the decision to cut production turned out to be the right one, at least over the short-run since it provided stability to the market at a turbulent time. However, the cuts could become a problem over the medium term if predictions of a tighter market through 2023 prove to be true. A drop in supply from Russia is expected to contribute greatly to the tight market.