Oil Price Fundamental Daily Forecast – Weak Dollar, OPEC+ Cuts Offsetting China Demand Concerns

U.S West Texas Intermediate and international-benchmark Brent crude oil futures are trading higher on Tuesday, clawing back some of yesterday’s losses as a weaker U.S. Dollar drove up demand for riskier assets. The move is offsetting widening COVID-19 restrictions in China that are stoking fears of slowing fuel demand by the world’s second-largest oil consumer.

At 09:40 GMT, December WTI crude oil futures are trading $87.59, up $1.06 or +1.23% and January Brent crude oil futures are at $94.17, up $1.36 or +1.47%. On Monday, the United States Oil Fund ETF (USO) settled at $71.57, down $1.25 or -1.72%.

 US Dollar Sinks Ahead of Fed Rate Decision

The U.S. Dollar is retreating on Tuesday from a one-week top against its major peers, as investors weighed the potential tone of the message Federal Reserve policymakers will deliver at Wednesday’s monetary policy meeting.

The Fed is widely expected to raise its benchmark overnight interest rate by 75 basis points, its fourth such increase in a row. But for the December meeting, Fed funds futures are split on the odds of a 75- or 50-bps increase. It’s this somewhat “dovish pivot” that is helping the dollar lose some of its luster.

The other reason for the weakness in the dollar is a dip in Treasury yields. A strong overnight rally in Asia-Pacific stock markets, combined with similar strength in U.S. stock index futures is dampening the safe-haven appeal of U.S. Treasury bonds.

A weaker greenback tends to make dollar-denominated crude oil less-expensive for holders of other currencies and usually reflects greater investor appetite for risk.

Traders Price in Latest Round of China COVID Restrictions

COVID-19 restrictions in China is spurring worries of lower fuel demand by the world’s top crude importer as it perseveres with its zero-COVID policy.

The austere pandemic curbs have caused China’s factory activity to decline in October and cut into its imports from Japan and South Korea, according to Reuters.

API Inventories on Tap

The American Petroleum Institute (API) is scheduled to release its weekly inventories report at 20:30 GMT. The report is expected to show a rise in U.S. crude oil stocks in the week to October 28 of about 300,000 barrels, according to a preliminary Reuter’s poll. Distillate and gasoline inventories were expected to fall.

Daily Forecast

The weakness in the U.S. Dollar couldn’t have come at a better time for crude oil bulls who are preparing to ride the start of perhaps another leg higher on the back of the OPEC+ production cuts that are expected to begin on November 1.

The record exports in the United States combined with speculation ahead of the European Union’s embargo of Russian crude oil are also helping to support prices.

Both WTI and Brent settled higher in October, posting their first monthly gains since May.