Oil Price Fundamental Daily Forecast – Upside Bias Until Hedge Funds Decide to Sell

U.S. West Texas Intermediate and international-benchmark Brent crude oil futures are posting a two-sided trade on Tuesday after clawing back earlier losses. The price action highlights the resilience of the buyers at this time, who continue to shrug off tighter lockdowns in Europe and a forecast for a slower recovery in demand next year.

At 11:59 GMT, February WTI crude oil is trading $47.11, down $0.04 or -0.08% and February Brent crude oil is at $50.21, down $0.08 or -0.16%.

Perhaps helping to keep the market underpinned is optimism from vaccination rollouts and concerns about a flare-up of tension in the Middle East.

Biggest Short-Term Fear is Lockdowns and Restrictions

Despite the vaccination rollout, there is fear that the current wave of lockdowns and restrictions will continue to inflict more damage on fuel demand.

London stepped up restrictions requiring bars and restaurants to close, as COVID-19 infection rates continued to rise sharply in the U.K., which will dent fuel demand in the near term.

CNBC said that “further marring the demand outlook, Italy said it was considering more stringent restrictions over the Christmas holidays, while most stores in Germany have been ordered to shut until January 10, with little prospect of an easing early in the new year.

“While the market has been buoyed by the rollout of COVID-19 vaccines, a path towards normalization of demand remains a difficult one,” ANZ analysts said in a note.

OPEC Issues Demand Warning

OPEC on Monday pared its forecast for a recovery in oil demand in 2021 by 350,000 barrels per day, due to the persistent impact of the pandemic, but said a rapid rollout of vaccines in major economies “provides potential upside for next year’s growth forecast.”

Vaccine Impact on Moribund Oil Demand is Several Months Away – IEA

The roll-out of vaccines this month to combat the coronavirus pandemic will not quickly reverse the destruction wrought on global oil demand, International Energy Agency (IEA) warned on Tuesday.

“The understandable euphoria around the start of vaccination programs partly explains higher prices but it will be several months before we reach a critical mass of vaccinated, economically active people and thus see an impact on oil demand,” the IEA said in its monthly report.

“In the meantime, the end of year holiday season will soon be upon us with the risk of another surge in COVID-19 cases and the possibility of yet more confinement measures.”

Daily Forecast

The demand outlook remains fragile but the hedge funds are running the show and they haven’t started selling yet. In fact, they may have bought more futures contracts on Monday’s dip.

Herd Theory is in play so when one fund starts to sell, the others will soon follow. At this time, however, there are no sellers.

Perhaps the bulls could crack later today when the American Petroleum Institute releases its weekly inventories figures or when the Energy Information Administration makes its similar announcement on Wednesday.

Both are expected to show that gasoline inventories rose by 1.6 million barrels last week, while distillate inventories, which include diesel and heating oil, rose by 400,000 barrels.

For a look at all of today’s economic events, check out our economic calendar.