Oil Price Fundamental Daily Forecast – Facing Headwinds Ahead of Crucial U.S. Consumer Inflation Data

U.S. West Texas Intermediate and international-benchmark Brent crude oil futures are edging lower on Monday after testing a key technical resistance area. Fundamentally, traders are lightening up positions ahead of Tuesday’s crucial consumer inflation data and the start of refinery maintenance season in Asia and the United States.

At 09:58 GMT, April WTI crude oil is trading $79.13, down $0.79 or -0.99% and April Brent crude oil is at $85.59, down $0.80 or -0.93%. On Friday, the United States Oil Fund ETF (USO) settled at $69.87, up $1.95 or +2.86%.

Traders Eyeing US CPI Report and Potential Impact on Fed Policy

The U.S. Federal Reserve has been on an interest rate hiking campaign since last March. It may be nearing the end of this cycle, but traders aren’t sure when that will be and at what level. This is creating concerns over a possible recession and demand for oil.

Tuesday’s U.S. consumer inflation report is crucial and it could force the Fed to tighten policy more aggressively if it comes in hot. Not only could it determine how high and for how long the Fed will lift rates, but it could slow economic growth as well as a crude demand.

Data on Tuesday is forecast to show the U.S. monthly consumer prices climbing 0.4% month-on-month in January, according to a Reuters survey of economists. Core Inflation is also expected to rise by 0.4% month-on-month.

Russia to Slash Production

Oil prices gained on Friday after Russia, the world’s third largest oil producer, said it would cut crude production in March by 500,000 barrels per day (bpd), or about 5% of output, according to Reuters. The move is being called a retaliation against western curbs on its exports that were imposed in response to the Ukraine conflict.

If you do the math, the 500,000 bpd cut would bring Russia back in line with its OPEC+ quota as Moscow is currently over-exporting.

Daly Outlook

Over the long-term, WTI and Brent crude oil prices are expected to be supported by speculators betting on China’s demand recovery and limited supply growth due to a lack of investment. This assessment is being supported by OPEC country officials, according to Reuters.

However, over the near-term the rally is going to go through series of stops and starts due to uncertainty over Fed interest rate hikes. The central bank is nearing the end of its interest rate hiking cycle, but traders are now pricing in potential rate hikes out to June. This may not change the trend to down, but it could produce headwinds, which limit the markets’ upside potential.