Oil Price Fundamental Daily Forecast – Underpinned by Weaker Dollar, Easing Omicron Fears

U.S. West Texas Intermediate and international-benchmark Brent crude oil futures are trading higher late in the session on Friday after recovering from early weakness. The market is likely being underpinned by a weaker U.S. Dollar and general optimism over the potential impact of the Omicron coronavirus variant on global demand.

At 20:00 GMT, January WTI crude oil is trading $71.79, up $0.85 or +1.20%. The United States Oil Fund (USO) ETF is at $51.93, up $0.91 or +1.78%.

Dollar-Denominated Crude Underpinned as Greenback Loses Ground after US Inflation Data

The dollar lost some ground on Friday after U.S. consumer prices increased roughly in line with expectations in November as investors, who had been bracing for much higher inflation, bet the actual number would not change the pace of interest rate hikes.

Labor Department data showed an increasing consumer price index (CPI) as cost of goods and services rose broadly amid supply constraints for the largest annual gain since 1982.

The CPI rose 0.8% last month after surging 0.9% in October while in the 12 months through November, it rose 6.8%, following a 6.2% advance in October. This compared with a 0.7% forecast from economists polled by Reuters.

A weaker U.S. Dollar tends to drive up foreign demand for the dollar-denominated commodity.

Traders Priced Out Omicron Worst Case Scenario

“The oil market has thus rightly priced out the ‘worst-case scenario’ again, but it would be well advised to leave a certain residual risk to oil demand in place,” said Commerzbank analyst Carsten Fritsch.

According to Zerohedge.com, “Scientists in South Africa continue to share the “positive” news that the Omicron variant of COVID-19 isn’t causing a spike in deaths, even as other countries like the UK continue to panic.

The CEO of South Africa’s largest private healthcare network said that the Omicron variant is “so mild” that it “may signal the end of COVID-19.”

Inventories Data a Non-Event

This week’s inventories reports from the API and EIA failed to move the needle much with Omicron grabbing most of the headlines and seemingly keeping the major players on the sidelines during this period of uncertainty.

On Tuesday, the API estimated the inventory draw for crude oil during the week-ending December 3 at 3.089-million barrels. Analysts were looking for a build of 2.093-million barrels for the week. Gasoline inventories of 3.705 million barrels were reported and distillate stocks were up 1.228 million barrels for the week.

Meanwhile, U.S. crude stocks fell less than expected in the latest week while production rose and fuel inventories increased, the EIA reported on Wednesday.

Crude inventories fell by 240,000 barrels in the week to December 3 to 432.9 million barrels, the EIA said. That was less than analysts’ expectations for a 1.7 million-barrel drop. Gasoline stocks rose by 3.9 million barrels in the week, compared with expectations for a 1.8 million-barrel rise.

Short-Term Outlook

Trader reaction to the 50% to 61.8% retracement zone at $73.13 to $75.66 will determine the next major move.

Look for a strong upside bias to begin on a sustained move over $75.66 and for the downside bias to resume on a sustained move under $73.13.