Oil Price Fundamental Daily Forecast – Hawkish Fed Minutes Could Lead to Further Weakness

U.S. West Texas Intermediate and international-benchmark Brent crude oil futures are edging lower on Wednesday as traders await the release of key U.S. economic data at 15:00 and the Fed meeting minutes at 19:00 GMT.

The catalysts driving prices lower are concerns about weak demand due to the state of the global economy and China’s rising COVID cases. Meanwhile, the ISM Manufacturing PMI report, will provide key information on the health of the economy that could have an influence on future crude oil demand.

At 14:32 GMT, March WTI crude oil is trading $74.65, down $2.47 or -3.20% and March Brent crude oil futures are at $79.37, down $2.73 or -3.33%. The United States Oil Fund ETF (USO) is at $65.32, down $2.32 or -3.43%.

Bearish Move by China

Reuters is reporting that China raised its first batch of 2023 export quotas for refined oil products by nearly half versus a year ago, according to China-based consultancies. The move is designed to spur refinery output, capture strong export margins and adapt to slow domestic demand.

The quotas could encourage refiners at the world’s top crude importer to process more crude and keep fuel exports at record levels in the first half, mitigating the impact the possible cuts in Russian diesel exports when European Union sanctions take effect in February.

The bigger quotas also reflected weak domestic fuel consumption as a surge in COVID-19 infections, following the relaxation of virus control measures, crimped travel and economic activity, a trader said.

“It will take a while before consumption comes back given the current COVID situation,” the trader said.

IEA Warns of Weaker Economy

On Sunday, the head of the International Monetary Fund warned that much of the global economy would see a tough year in 2023 as the main engines of global growth – the United States, Europe and China – will all experience weakening activity.

Daily Forecast

Traders are bracing for the ISM Manufacturing PMI report at 15:00 GMT. It is expected to come in a 48.5, down from 49.00. A reading under 50 indicates contraction. A lower than expected reading will be bearish for crude oil prices.

At 19:00 GMT, the Federal Reserve will release the minutes from its December meeting. The Fed raised interest rates by 50 basis points at the meeting after four consecutive increases of 75 basis points.

If the Fed minutes reveal policymakers are looking to keep raising rates aggressively then that could slow the economy and hamper fuel consumption. That could add to today’s bearish tone.