Oil Price Fundamental Daily Forecast – Upside Momentum Suggests Traders Downplaying Worries Over Omicron

U.S. West Texas Intermediate and international-benchmark Brent crude oil futures are inching higher on Thursday, but low pre-holiday volume seems to be limiting gains. Relatively low volume also suggests the major players have moved to the sidelines.

Nonetheless, they appear to have made their point by driving prices sharply higher this week on the hopes of a less-devastating impact on demand from Omicron and a bullish government storage report.

At 14:23 GMT, March WTI crude oil futures are trading $72.44, up $0.11 or +0.15% and March Brent crude oil is at $75.44, up $0.16 or +0.21%. On Wednesday, the United States Oil Fund ETF (USO) settled at $52.48, up $0.91% or +1.75%.

Omicron Might Be Containable

Oil prices rallied Tuesday and Wednesday and are showing signs of stability on Thursday as signs the worst effects of the Omicron coronavirus variant might be fairly containable. However, there are still some concerns over the possibility of new curbs that could lead to some demand reduction.

Wednesday’s Big Gains Partly Spurred by Larger-than-Expected Crude Stockpile Drawdown

U.S. crude stocks fell more than expected in the most recent week due to year-end tax considerations, analysts said, while gasoline and distillate inventories rose, the Energy Information said on Wednesday.

Crude inventories fell by 4.7 million barrels in the week to December 17 to 423.6 million barrels, compared with analysts’ expectations in a Reuters poll for a 2.7 million-barrel drop.

Gasoline stocks rose more than anticipated, with a build of 5.5 million barrels in the week, compared with expectations for a 467,000 million-barrel rise.

Distillate stockpiles rose 396,000 barrels in the week to 124.2 million barrels.

Crude stocks at the Cushing, Oklahoma, delivery hub rose by 1.5 million barrels in the last week, the EIA said.

Short-Term Outlook

WTI and Brent have once again reached the balance point on the charts, but they have not erased the damage caused by worries over Omicron. The move likely indicates the market is on the road to recovery after pricing in the worst case scenario during the first two weeks of December.

We’re also disappointed by the gasoline numbers in the EIA report. The unexpected build in inventory may be an early signal of weakening demand due to the Omicron variant of the coronavirus. However, this may have been a “one and done” build since the outlook has improved since the week-ending December 17.

For March WTI, the key area controlling the near-term direction is $71.39 to $73.59. Clearing the upper level would be a sign of strength. This could force weak shorts to cover.

The key area to watch for March Brent crude oil is $74.57 to $76.70. The upper level is also a potential trigger point for an acceleration to the upside.