Oil Price Fundamental Daily Forecast – China Demand, US SPR Replenishment Underpinning Prices

U.S. West Texas Intermediate and international-benchmark Brent crude oil futures are trading flat on Monday after giving back earlier gains. Underpinning the market shortly after the opening was optimism over demand recovery due to China’s easing of COVID-19 curbs and the United States’ decision to replenish its Strategic Petroleum Reserve (SPR) by buying back oil. The two news stories are offsetting global recession fears.

At 08:30 GMT, March WTI crude oil futures are trading $74.18, down $0.36 or -0.48% and March Brent crude oil is at $79.28, down $0.21 or -0.26%. On Friday, the United States Oil Fund ETF (USO) settled at $64.88, down $1.27 or -1.92%.

Despite today’s early gains, there are still downside risks especially after a number of hawkish moves by several central banks last weeks. Remarks by the United States and the European Central Bank (ECB) ignited worries of possible recession.

China Plans to Increase Growth through Fiscal Stimulus, Stable Monetary Policies

Crude oil spurted higher before fizzling after China pledged to focus on stabilizing its $17-trillion economy in 2023 and step up policy adjustments to ensure key targets are hit.

Top policymakers and leaders at a closed-door two-day meeting for charting the economy’s course next year decided they would use fiscal stimulus and stable monetary policies as their two main tools for growth.

Analysts from Morgan Stanley believe a faster and sharper rise in mobility implies a stronger rebound in GDP growth starting in the early second quarter of 2023.

“In view of a faster rebound in economic activity, sustained at higher levels for longer, we now lift our 2023 GDP growth forecast from 5% to 5.4%, bringing it even higher than the consensus expectation of 4.8%,” they said in a note on Monday.

US to Replenish its Strategic Petroleum Reserve

The oil market was also supported by Friday’s announcement by the U.S. Energy Department that it will begin repurchasing crude oil for the Strategic Petroleum Reserve for delivery in February 2023. This will be the United States’ first purchase since this year’s record 180 million barrel release from the stockpile.

Short-Term Outlook

The short-term fundamentals mark the first time in weeks that there is positive news on both the demand and supply side of the equation. However, gains could be limited as more investors bet on a global recession to cap demand.

The charts indicate the markets may have found value. However, the market lacks a major catalyst that could lead to a sustainable rally.

In the meantime, we expect to see a choppy, two-sided trade over the near-term.