Oil Price Fundamental Daily Forecast – Lower as Recession Fears Offset New COVID Easing in China

U.S. West Texas Intermediate and international-benchmark Brent crude oil futures are inching lower on Wednesday, hovering just above a major support area. Traders are blaming this week’s downfall on concerns about recession and easing fears that a Western cap on Russian oil prices would lead to a supply shortage.

At 11:01 GMT, January WTI crude oil is trading $73.59, down $0.66 or -0.89% and February Brent crude oil is at $78.50, down $0.85 or -1.07%. On Tuesday, the United States Oil Fund ETF (USO) is at $65.22, down $2.50 or -3.70%.

Surprisingly, the markets are showing little response to the news of further easing of COVID-19 restrictions in China and a private industry report showing another drawdown in crude oil inventories.

Recession Fears Drive Demand Worries

The top ranking executives at the biggest U.S. banks are bracing for a worsening economy next year as inflation threatens consumer demand, Reuters reported. The news helped drive up demand for the safe-haven U.S. Dollar, which weighed on foreign demand for dollar-denominated crude oil.

JPMorgan Chase & Co Chief Executive Jamie Dimon told CNC, “Those things might very well derail the economy and cause this mild to hard recession that people are worried about,” he said.

Bank of America CEO Brian Moynihan told investors at a Goldman Sachs financial conference that the bank’s research shows “negative growth” in the first part of 2023, but the contraction will be “mild.”

Goldman Sachs CEO David Solomon added, “Economic growth is slowing. When I talk to our clients, they sound extremely cautious.”

China Loosens Anti-COVID rules in Major Policy Shift

China announced on Wednesday the most sweeping changes to its tough anti-COVID regime since the pandemic began three years ago, loosening rules that curbed the spread of the virus but had hobbled the world’s second largest economy and sparked protests.

On paper, the news is potentially bullish, but the price action suggests the move may not be enough to put a major dent into the demand situation.

American Petroleum Institute Weekly Inventories Report

Crude oil inventories dropped for the fourth week in a row the week-ending December 2. The American Petroleum Institute (API) reported a drawdown of 6.426 million barrels. Analysts were looking for a 3.884 million barrel draw.

The API also reported a build in gasoline inventories this week of 5.93 million barrels for the week ending December 2, on top of the previous week’s 2.85-million-barrel build. Distillate stocks also saw a build this week of 3.55 million barrels. Last week, stocks rose 4.01-million-barrels.

Short-Term Outlook

Technical factors may come into play over the short-run as WTI crude oil heads toward a major retracement zone at $72.31 – $63.73. Not only is this zone potential support, but it’s also a value area since it represents 50% to 61.8% of the futures contract range.

In other news, the U.S. Energy Information Administration (EIA) on Tuesday raised its forecast for this year’s crude output growth marginally, while petroleum demand is likely to rise less than previously expected.

Later today at 15:30 GMT, traders will get the opportunity to react to the latest supply report from the Energy Information Administration (EIA). It is expected to confirm the API data with a 3.5 million barrel drawdown in crude stockpiles.