Oil Price Fundamental Daily Forecast – Pressured Ahead of Several Central Bank Rate Hikes

U.S. West Texas Intermediate and international-benchmark Brent crude oil futures are inching lower on Tuesday as traders prepared for a slew of interest rate hikes from the U.S. Federal Reserve, the Bank of England and the European Central Bank. Meanwhile, plenty of supply from Russia is outweighing demand recovery expectations from China.

At 05:47 GMT, March WTI crude oil futures are trading $77.71, down $0.19 or -0.24% and March Brent crude oil futures are at $84.69, down $0.21 or -0.25%. On Monday, the United States Oil Fund ETF (USO) settled at $68.11, down $1.39 or -2.00%.

Central Bank Rate Hikes on Tap

Crude oil investors expect the U.S. Federal Reserve will raise interest rates by 25 basis points on Wednesday, with a half-point increase by the Bank of England and European Central Bank the following day. Higher rates could slow the global economy and weaken oil demand.

The rate increase expected at the Federal Open Market Committee’s Jan. 31-Feb.1 meeting would bring the policy rate to the 4.5%-4.75% range. That’s two quarter-point rate hikes short of the level most Fed policymakers in December thought would be “sufficiently restrictive” to bring inflation under control. But futures currently expect rates to peak at about 4.9% in June before retreating to 4.5% by year-end.

Meanwhile, Treasury yields are hovering near a two-week low that is helping to underpin the U.S. Dollar. Since crude oil is a denominated asset, a stronger greenback tends to weaken foreign demand.

No Change Expected in OPEC+ Policy

Besides the central bank meetings, a gathering on Wednesday of key ministers from the OPEC+ group compromising the Organization of the Petroleum Exporting Countries (OPEC) and allies led by Russia will also be in focus.

The OPEC+ panel meeting is unlikely to tweak output policy, three OPEC+ delegates told Reuters on Monday.

Additionally, five OPEC+ sources told Reuters last week that the JMMC would discuss the economic outlook and the scale of Chinese demand. The group will want to buy some time given the uncertainty related to sanctions on Russia and their impact on supply.

OPEC+ agreed in October to cut its production target by 2 million barrels per day (bpd), about 2% of world demand, from November until the end of 2023.

Short-Term Outlook

With the focus on the central banks this week, traders are showing little reaction to the potentially bullish news from the International Monetary Fund (IMF).

The IMF on Tuesday raised its 2023 global growth outlook slightly due to “surprisingly resilient” demand in the United States and Europe, and easing of energy costs and the reopening of China’s economy after Beijing abandoned its strict COVID-19 restrictions.

The IMF said global growth would still fall to 2.9% in 2023 from 3.4% in 2022, but its latest World Economic Outlook forecasts mark an improvement over an October prediction of 2.7% growth this year with warnings that the world could easily tip into recession.

The IMF report could have longer-term implications, but at this time, crude oil traders want to hear the comments from central bank officials about chances of a recession. This will have a greater influence on prices over the near-to-mid-term.