Oil Price Fundamental Daily Forecast – Threat of Strategic Reserve Release from China Erases Earlier Gains

U.S. West Texas Intermediate and international-benchmark Brent crude oil futures are trading mixed late in the session on Friday after giving up most of their early gains.  The inability to sustain the intraday rally suggests investors are being cautious ahead of the weekend because of both supply and demand concerns.

At 18:10 GMT, January WTI crude oil futures are trading $66.43, down $0.07 or -0.11% and February Brent is at $69.86, up $0.19 or +0.27%. United States Oil Fund (USO) is trading $48.10, down $0.19 or -0.40%.

Supply-Side Outlook Bearish – More Oil from OPEC+, China Could Tap Reserves

WTI and Brent crude oil futures are in a position to decline for a sixth week in a row for the first time since November 2018.

Despite concerns over demand destruction, the Organization of the Petroleum Exporting Countries, Russia and allies, a grouping know as OPEC+, surprised the market on Thursday when it stuck to its plans to add 400,000 barrels per day (bpd) supply in January.

OPEC+ agreed on Thursday to keep the current policy of monthly oil output increases despite fears that a U.S. release from crude reserves and the new Omicron coronavirus variant would lead to a fresh oil price rout.

Benchmark Brent crude fell more than $1 after the deal was reported, before recovering some ground earlier Friday.

Nonetheless, the selling pressure resumed after U.S. President Joe Biden said China could release more oil from its reserves although it has not done so yet, adding that decreases in gasoline prices are beginning to reach Americans.

Citing a decision by the United States and other countries including India and Japan to release oil from reserves to help lower prices, Biden said “China may very well do more as well. They haven’t done it yet.”

OPEC+ to Monitor for Real Effect of Omicron

OPEC+ remains concerned that the COVID-19 pandemic could once again drive down demand. Surging infections have prompted renewed restrictions in Europe and the Omicron variant has already led to new clamp downs on some international travel.

“We have to closely monitor the market to see the real effect of Omicron,” one OPEC+ delegate said after the talks.

Potentially Bullish:  OPEC+ Poised to Act if Demand Weakens

Although the markets have since given up their earlier gains, prices did climb throughout the morning on the belief that OPEC+ could review its policy to hike output at short notice if oil demand collapsed due to a rising number of pandemic lockdowns.

This could be an insurance card for speculative buyers who want to make an aggressive bet on a strong price recovery from current levels.

“Its (OPEC+) decision to continue increasing monthly crude production is a vote of confidence in the near-term demand outlook. Better said, OPEC+ is banking on the new Omicron variant not having a lasting impact on oil demand,” PVM said in a note.