Oil Price Fundamental Daily Forecast – Traders Waiting for Russia to Respond to Output Cut Recommendation

U.S. West Texas Intermediate and international-benchmark Brent crude oil futures are edging higher on Tuesday, but the market is trading inside the previous day’s range, suggesting investor indecision and impending volatility. Volume is also below average.

The price action is being fueled by uncertainty over whether Russia will go along with the OPEC+ recommendation to increase production cuts in response to lower demand expectations due to the coronavirus.

At 09:29 GMT, March WTI crude oil is trading $50.39, up $0.82 or +1.71% and April Brent crude oil is at $54.20, up $0.94 or +1.76%.

The markets are also being underpinned by a jump in demand for risky assets as tensions over the coronavirus eased on reports that the spread of the disease may have peaked. Furthermore, some factories in China have restarted after being shut down for several weeks, leading some to speculate that the worst of the demand crisis may be over.

Chinese Refiners to Take a Hit

Traders remain concerned that China’s oil demand could take a further hit if the coronavirus cannot be contained. Chinese state refiners have already said they will cut as much as 940,000 barrels per day (bpd) from their crude runs in February due to the virus.

“China’s refiners are processing 15% less crude and that could get a lot worse if the virus doesn’t peak this month,” Edward Moya, senior market analyst at OANDA, told Reuters.

OPEC+ Panel Calls for More Oil Cuts Due to Coronavirus Impact on Demand

Last week, a technical panel that advises OPEC and its allies led by Russia proposed a provisional cut in output of 600,000 barrels per day (bpd), three sources told Reuters earlier. That is about 0.6 percent of global supply and would extend current curbs of 1.7 million bpd.

The OPEC+ Joint Technical Committee has also recommended extending current output cuts of 2.1 million bpd until the end of 2020, two sources said. The current OPEC+ agreement expires in March.

Daily Forecast

The tight trading range is being generated by comments from Russia Energy Minister Alexander Novak on Friday. He said Russia needs a few more days to assess proposals for deeper oil output cuts and could formulate a response possibly this week.

“I can’t tell you about my position right now, maybe we will say it next week,” Novak said in response to a question about Russia’s stance.

“Russia needs a few days for market analysis,” Novak.

When Novak does give his response, it will be a market moving event. If he goes along with the recommendations then look for a short-covering rally. If he says no change then prices could plunge to multi-year lows.

Late Tuesday at 21:30 GMT, look for a response to the American Petroleum Institute’s (API) weekly inventories report. Traders expect the report to show a 2.9 million barrel build.