Oil Price Fundamental Daily Forecast – Volatile Trade Ahead of EIA Inventories Data, Fed Rate Decisions

U.S. West Texas Intermediate and international-benchmark Brent crude oil futures are trading nearly flat on Wednesday after giving up earlier advances.

The move may be technically related since the markets stopped moving higher as they neared last week’s highs.

We could also be looking at position-squaring ahead of today’s U.S. government inventories report and the Federal Reserve’s key interest rate decision.

At 09:44 GMT, December WTI crude oil is trading $88.19, down $0.18 or -0.20%. January Brent crude oil is at $94.46, down $0.19 or -0.20%. On Tuesday, the United States Oil Fund ETF (USO) settled at $73.12, up $1.59 or +2.22%.

Weak Dollar, Increased Chinese Demand Provided Earlier Support

WTI and Brent crude oil move higher earlier in the session on the back of Tuesday’s strong performance that was fueled by a number of factors including a weaker U.S. Dollar and an unverified note trending on social media that said the Chinese government was looking at ways to curb the COVID-19 restrictions starting in March 2023.

Both factors would have helped to alleviate some of the concerns over demand.

Traders have cited the strong U.S. Dollar and China’s COVID-19 restrictions as two key factors keeping a lid on crude oil prices.

A strong dollar makes commodities priced in the greenback more expensive for holders of other currencies. Meanwhile, China’s on-going zero-COVID policy has led to repeated lockdowns throughout the country, curtailing growth and paring oil demand in the world’s second-largest economy.

API Reports Large Crude, Gasoline Drawdowns

Crude oil received a boost late Tuesday that carried over into the overnight trade after the American Petroleum Institute (API) reported a huge draw this week for crude oil of 6.53 million barrels.

The draw in crude inventories took place despite the Department of Energy’s release of 1.9 million barrels from the Strategic Petroleum Reserves in the week-ending October 28, leaving the SPR with 399.8 million barrels.

The API also reported a draw in gasoline inventories the week-ending October 28 of 2.64 million barrels. However, distillate stocks saw a build this week of 865,000 barrels, compared to last week’s 635,000-barrel increase.

Daily Forecast

Today’s reversal to the downside in crude oil prices suggests traders may be taking a cautious approach ahead of today’s Energy Information Administration (EIA) inventories report, due to be released at 14:30 GMT and the Federal Reserve’s widely expected interest rate hike at 18:00 GMT.

According to pre-report estimates, the EIA is expected to show that crude inventories fell 200,000-barrels during the week-ending October 28. This would be significantly less than the API draw of 6.53 million barrels, which could be the source of volatility.

Meanwhile, the Fed is expected to raise its benchmark interest rate by 75-basis points. However, the focus will be on whether policymakers suggests a slower pace of rate hikes starting in December.

The U.S. Dollar will be affected by the Fed’s decision. A stronger dollar could weigh on crude oil prices.

A weaker dollar could give crude oil prices a boost along with longer-term support from the start of OPEC+’s production cuts. Sentiment is also leaning to the upside in anticipation of the start of the European Union embargo on Russian oil that is set to start on December 5. According to estimates, the oil complex may lose anywhere from between 1-3 million barrels per day in an already tight market.