Oil Price Fundamental Daily Forecast – Underpinned by Russian Supply Curbs, China Demand Prospects

U.S. West Texas Intermediate and international-benchmark Brent crude oil futures are edging lower but inside Friday’s wide range. The price action suggests investor indecision and impending volatility.

Underpinning the markets are better than expected business activity in Europe as well as supply cubs in Russia and hopes for a Chinese demand recovery. Helping to cap gains are worries that rising interest rates and a stronger U.S. Dollar will slow the economy enough to restrict demand.

At 14:00 GMT, April WTI crude oil is at $76.86, up $0.31 or +0.40% and April Brent crude oil is at $83.34, up $0.34 or +0.41%. Last Friday, the United States Oil Fund ETF (USO) settled at $67.07, down $1.38 or -2.02%. The ETF market was closed on Monday.

Supported by Not So Gloomy Business Outlook in Europe, UK Ahead of US PMI Reports

WTI and Brent crude oil received a slightly bump overnight after a survey showed on Tuesday that the recovery in Euro Zone business activity picked up steam in February. This was better than the forecast. A similar survey in the UK also showed businesses in Britain reporting an unexpected bounce in activity.

Traders are now bracing for the Flash Manufacturing PMI and Flash Services PMI reports from the United States, due to be released at 14:45 GMT. They are expected to show a slight uptick, but still come in under the contraction level of 50.

Other Bullish Factors – Chinese Demand Recovery, Lower Russian Supply

On Monday, crude oil prices were lifted by speculation that China’s demand recovery was moving along smoother than expected. At the same time, we are rapidly approaching the start of Russia’s planned production cuts that could remove as much as 500,000 barrels per day of crude from the market.

Traders Eyeing Fed Rate Hikes

On Wednesday, the Federal Reserve will release the minutes from its last meeting. They are expected to reveal that policymakers discussed at least two more rate hikes in March and May. However, since the meeting on Feb. 1, conditions have changed and now the market is pricing in a possible third rate hike in June. This is raising concerns that the Fed has gone too far, putting the economy at risk for a recession.

Any contraction in the economy or a recession would do serious damage to crude oil demand.

Short-Term Outlook

Despite the fears over higher interest rates causing a recession, the market seems well supported by optimism over China’s demand recovery and the prospect of lower supply due to Russia’s production cuts.

Good news from Europe and the UK on their respective economic recoveries is also underpinning prices. We could see a positive rebound in the markets if the US PMI reports come in better than expected.