Oil Price Fundamental Daily Forecast – Choppy Trade Amid Recession Fears Ahead of EIA Inventories Report

U.S. West Texas Intermediate crude oil futures are edging higher on Thursday after rebounding from an earlier loss. The intraday recovery is likely being fueled by short-covering and position-squaring ahead of today’s U.S. Energy Information Administration (EIA) weekly inventories report.

The market may be also receiving a slight boost from the Philly Fed report on East Coast manufacturing that showed regional manufacturing activity contracted at a slower rate in the month of January.

At 14:24 GMT, March WTI crude oil futures are trading $80.08, up $0.28 or +0.35%. This is up from an intraday low of $78.45. The United States Oil Fund ETF (USO) is at $70.07, up $0.56 or +0.81%.

Gains could be limited today due to recession fears, a drop in demand for risky assets and worries about oversupply.

API Reports Crude Oil, Product Inventory Builds Ahead of EIA Report

Crude oil inventories rose by 7.615 million barrels, American Petroleum Institute (API) data showed on Wednesday. The mean average forecast from a Reuters’ poll of nine analysts had been for a fall of about 600,000 barrels.

Gasoline inventories rose by 2.8 million barrels, while distillates fell 1.8 million barrels. Cushing added to the weekly inventory gains with 3.7 million barrels.

Traders Bracing for EIA Inventories Report

Today’s weekly report from the U.S. Energy Information Administration at 15:30 GMT is expected to show a draw in crude oil stocks of 2.1 million barrels. This figure would be a marked change from last week’s report 19.0 million barrel build.

Nonetheless, traders are bracing for a possible surprise due to the huge miss in the API report overnight.

Recession Fears Offsetting Optimistic Outlook for Renewed China Demand

Fears of a recession in the United States were heightened on Wednesday following the release of disappointing U.S. retail sales and industrial production data. A bigger-than-expected drop in U.S. producer inflation also weighed on sentiment.

The reports have crude oil traders questioning whether the Fed may have gone too far with its rate hikes and that expectations of a “soft-landing” in the economy have been taken off the table. Some traders may be pricing in the impact of a full-recession on crude oil demand.

Short-Term Outlook

Of course what happens to the U.S. economy will also hit China’s economy hard. So a U.S. recession could be devastating to China especially since the country is still trying to emerge from three-years of excessive COVID-19 restrictions.

That being said, it’s difficult at this time to forecast China demand. Opening up the economy will be one way to solve the global demand issue, but those gains could be limited if there is a global recession.

Prices could remain rangebound over the next 3 to 6 months if analysts can’t get a firm grip on future demand, especially from China.