Oil Price Fundamental Daily Forecast – China COVID Deaths Offsetting Last Week’s Reopening Optimism

U.S. West Texas Intermediate and international-benchmark Brent crude oil futures are inching lower on Monday after testing a key resistance area.

Fundamentally, prices are being pressured by a firm U.S. Dollar and fears that the rising numbers of COVID-19 cases in China could cloud prospects for higher demand. Last week, the market strengthened as traders priced in the possibility of a jump in demand as the world’s top crude importer prepares to reopen its economy after ending strict anti-virus curbs.

At 12:02 GMT, March WTI crude oil is trading $79.87, down $0.24 or -0.30% and March Brent crude oil is at $84.94, down $0.34 or -0.40%. On Friday, the United States Oil Fund ETF (USO) settled at $70.05, up $1.44 or +2.10%.

Traders Facing Several Obstacles

The early price action suggests investors are being a little cautious due to uncertainty over Fed policy, rising U.S. crude oil stockpiles and whether key organizations like the International Energy Agency (IEA) and OPEC revise their outlooks on oil prices and demand for the year.

The area March WTI is having trouble overcoming at $80.23 – $82.51 is also a key resistance area. It stopped the last rally at $81.62.

A similar retracement zone at $85.92 – $88.34 is resistance for the March Brent futures contract. It stopped a rally on January 3 at $87.02.

Traders Monitoring China Imports and Exports

China’s crude oil imports fell for the second year in a row in 2022 despite a burst of purchases in the fourth quarter, as the country’s strict COVID-19 control measures hobbled the economy and fuel demand.

Imports for the full year by the world’s top buyer totaled 508.28 million tonnes, equivalent to 10.17 million barrels per day, 0.9% lower than in 2021, according to data from the General Administration of Customs.

With the government focused on reviving economic growth this year after dropping its tough COVID control measures, some analysts are expecting China’s crude oil imports to rebound strongly in 2023.

Friday’s data also showed fuel exports – including gasoline, diesel, aviation fuel and marine fuel oil – reached 7.7 million tonnes in December, the highest since April 2020 and up from 6.14 million tonnes in November.

Annual fuel exports, however, remained 11% below 2021 at 53.69 million tonnes, due to steep reductions in overseas shipments earlier in 2022 as the government sought then to curb excessive domestic processing.

Short-Term Outlook

Traders should note that the recovery in China from COVID restrictions is going to take some time with several stops and starts along the way.

Fueling last week’s rally, for instance, was a rebound in traffic levels in China from record lows after the easing of COVID-19 restrictions. However, new reports over the weekend, are highlighting and increase in COVID-19 deaths weighed on sentiment.

This suggests the price action should be choppy, or rangebound until WTI clears $82.51 and Brent overcomes $88.34 with strong buying volume.