Oil Price Fundamental Daily Forecast – Bullish Russian Output Cuts Offsetting Rate Hike Fears

After enduring heavy selling pressure at midweek, U.S. West Texas Intermediate and international-benchmark Brent crude oil futures posted a significant turnaround on Friday.

Oil prices moved sharply lower in early trading amid concerns about the outlook for interest rates following the release of hotter-than-expected U.S. inflation data.

On Friday, April WTI crude oil futures settled at $76.32, up $0.93 or +1.23% and May Brent crude oil futures finished at $82.82, up $0.87 or +1.06%. The United States Oil Fund ETF (USO) closed at $67.10, up $0.72 or +1.08%.

Crude Oil Prices Sensitive to Higher Rate Hike Expectations

The U.S. Commerce Department reported on Friday that the core personal consumption expenditures price index (PCE), the Fed’s preferred measurement of inflation, rose 0.6% in January and 4.7% from the prior year, coming in above economists’ expectations.

The report added to worries that the Fed may have to keep rates higher for longer to quell inflationary pressures.

These worries helped drive U.S. Treasury yields higher, making the U.S. Dollar a more attractive investment. Traders are concerned that higher rates will push the economy into recession. They are also worried that a stronger greenback will weigh on foreign buyers of dollar-denominated crude oil. Both events are likely to weigh on demand, pushing up supply and driving prices lower.

Bigger-than-Expected Reduction in Russian Oil Production Sends Prices Higher

Helping to fuel the volatile turnaround in crude oil prices on Friday and offsetting concerns about rising interest rates and soaring inventories was the prospect of lower Russian exports.

On Wednesday, Reuters exclusively reported that Russia plans to cut oil exports from its western ports by up to 25% in March versus this month, exceeding its announced production cuts in a bid to lift prices for its oil, three sources in the Russian oil market said.

Looking Ahead…

Now that Russia has announced its intent to cut production, the new wildcard is the demand recovery in China. Good news on the data from this week from China PMI reports could be supportive for oil prices.

However, higher than expected PMI data from the United States could put a lid on crude oil prices because it will increase the odds of the Federal Reserve raising rates longer-than-previously anticipated.

All this adds up to is a rangebound trade with heightened volatility likely.