Oil Price Fundamental Daily Forecast – EIA Draw Needed to Extend Early Rally

U.S. West Texas Intermediate and international-benchmark Brent crude oil futures are edging higher on Wednesday, supported by an industry report that showed a larger than expected draw in U.S. crude inventories. However, gains are being capped by growing worries over demand in China and a snowstorm that is expected to hit fuel demand.

At 12:06 GMT, March WTI crude oil futures are trading $77.65, up $1.42 or +1.86% and March Brent crude oil is at $81.99, up $1.46 or +1.81%. On Tuesday, the United States Oil Fund ETF (USO) settled at $66.21, up $0.14 or +0.21%.

API Reports Larger-than-Expected Drawdown

U.S. crude inventories fell by about 3.1 million barrels in the week to Dec. 16, according to the American Petroleum Institute (API). Nine analysts polled by Reuters had forecast a drop of 1.7 million barrels.

Traders are expecting official government data from the Energy Information Administration (EIA) to show a 2.5 million barrel build. A surprise draw should be bullish for crude oil prices.

Underpinned by Saudi Energy Minister’s Comments

Boosting prices were by comments from Saudi Arabia’s energy minister, who said on Tuesday that the heavily criticized move by OPEC+ to cut oil output turned out to be the right decision, according to Reuters.

“Playing politics with statistics and forecasting and not maintaining objectivity often tend to backfire and result in loss of credibility,” the energy minister said.

In the face of a wide range of uncertainties, OPEC+ has no choice but to remain pro-active and pre-emptive, he said.

The remarks suggest that OPEC+ may continue to keep supply tight at next month’s policy meeting.

Cold Weather Threatens Demand

Experts are expecting a winter storm to bring heavy snow and extreme cold to the United States. This could curtail plans during the holiday travel season. Flight delays, cancellations and impassable roads during one of the busiest travel periods of the year could drive down fuel demand.

Short-Term Outlook

Prices are rising ahead of today’s EIA inventories report but traders are keeping an eye on surging COVID-19 cases in China. These worries could limit gains.

The market is getting a boost from the unexpected draw as reported by the API. A surprise draw by the EIA at 15:30 GMT later today would have an even greater upside impact.

Traders are also expecting the move by the US to refill its Strategic Petroleum Reserve (SPR) to add some support.

While the supply side appears to be tightening, any attempt to rally will be limited if China doesn’t increase demand.