Oil Price Fundamental Daily Forecast – Hawkish Fed Chair Powell Could Dent Demand Outlook

U.S. West Texas Intermediate and international-benchmark crude oil futures are inching higher on Tuesday while prices continue to consolidate inside its $5.00 three-day range.

The markets are being underpinned by optimism over the reopening of China’s borders, which may lead to increased demand for energy products. However, gains are being limited as traders await clarity on the Federal Reserve’s plans for rate hikes, which also will have an impact on the economy and fuel demand.

At 13:03 GMT, March WTI crude oil is at $75.13, up $0.21 or +0.28% and March Brent crude oil is at $79.78, up $0.13 or +0.16%. On Monday, the United States Oil Fund ETF (USO) settled at $65.90, up $1.07 or +1.65%.

Fed Member Comments Capping Gains

Atlanta Federal Reserve Bank President Raphael Bostic and San Francisco Federal Reserve Bank President Mary Daly said on Monday that they expected the Fed policy rate – now at 4.25% to 4.5% – would need to rise in steps to 5.0-5.25% to bring higher inflation rates under control.

Fed policymakers Bostic and Daly also said fresh inflation data out on Thursday will help them decide whether they can slow the pace of interest rate hikes at their upcoming meeting, to just a quarter point increase instead of the larger jumps they decreed for most of 2022.

Thursday’s US Consumer Inflation Data Could Set the Near-Term Tone

This week’s U.S. Consumer Price Index (CPI) data could determine the direction of the markets for several weeks.

If inflation were to come in below expectations or was below the November reading, Treasury yields would tumble and the U.S. Dollar would weaken. The weaker greenback would be supportive for dollar-denominated assets like crude oil.

Consensus forecasts are for headline CPI inflation to drop to 6.5% in December from 7.1% in November and for ‘core’ rates to fall back below 6%.

Daily Outlook

Early in the session, crude oil prices are likely to be influenced by comments from U.S. Federal Reserve Chairman Jerome Powell. He is scheduled to speak on central bank independence at a central bank conference at 14:00 GMT.

Crude oil prices could rally if Powell’s tone is dovish, but if he delivers a speech with a hawkish tone then look for prices to weaken. If he doesn’t talk about Fed policy at all then traders will move their attention to Tuesday’s American Petroleum Institute report, due at 21:00 GMT, Wednesday’s Energy Information Administration (EIA) inventories report at 15:30 GMT and Thursday’s CPI report at 13:30 GMT.

Today’s API report is expected to show a 2.375 million barrel drawdown.