Oil Price Fundamental Daily Forecast – Supported by China Optimism, Weather-Driven US Production Cuts

U.S. West Texas Intermediate and international-benchmark Brent crude oil futures are edging higher on Tuesday. The market rose to a three-week high earlier in the session as the U.S. Dollar weakened after China eased some COVID-19 travel restrictions. Since the early surge, however, the market has given back nearly all of its gains.

At 14:00 GMT, March WTI crude oil futures are trading $79.79, up $0.15 or +0.19%. On Friday, the United States Oil Fund ETF (USO) settled at $69.29, up $1.59 or +2.34%. There was no trading on Monday.

China Move Spurs Hopes of More Demand

Crude oil futures jumped on the opening on Tuesday as China’s latest easing of COVID-19 restrictions spurred hopes of a fuel demand recovery.

China will stop requiring inbound travelers to go into quarantine, starting from January 8, the National Health Commission said on Monday in a major step towards easing curbs on borders that have been largely shut since 2020, Reuters reported.

Demand for dollar-denominated commodities like crude oil rose while the greenback softened in response to China’s decision. A weaker greenback makes dollar-denominated crude oil less-expensive for foreign traders.

Additional Support Coming from Weather-Induced US Production Cuts

Crude oil was supported on the opening after cuts to U.S. energy production caused by winter storms. As of Friday, some 1.5 million barrels of daily refining capacity along the U.S. Gulf Coast was shut, while oil and gas output from North Dakota to Texas suffered freeze-ins, cutting supply.

Daily Forecast

The big story of the day is China’s planned easing of COVID-related travel restrictions. This may lead to increased travel to the country, but it’s not likely to be a long-term solution to its demand problems.

The takeaway from this event is that China’s government is willing to ease the restrictions. It’s moving closer to opening the economy, but it’s just not there yet.

The other major story that is generating some bullish optimism is concern over a possible production cut by Russia.

Russia might cut oil output by 5% to 7% in early 2023 as it responds to price caps, the RIA news agency citied Deputy Prime Minister Alexander Novak as saying on Friday.