WTI and Brent Crude Oil

Oil Price Fundamental Daily Forecast – OPEC+ Delivers as Promised; Focus Shifts to US Gasoline Demand

U.S. West Texas Intermediate and international-benchmark Brent crude oil futures are trading flat on Wednesday after reaching its highest level since November 24 the previous session.

The catalysts supporting the markets are OPEC+’s planned production increase, a major inventories draw and steady demand expectations.

Helping to put a lid on prices are surging Omicron coronavirus variant cases and an unexpected jump in gasoline stocks.

At 08:05 GMT, March WTI crude oil is at $76.66, down $0.08 or -0.10% and March Brent crude oil is at $79.95, down $0.05 or -0.06%. On Wednesday, the United States Oil Fund ETF (USO) settled at $55.58, up $0.75 or +1.37%.

OPEC+ Sticks with Planned Output Increase

OPEC and its allies agreed on Tuesday to stick to its planned increase in oil output for February because it expects the Omicron coronavirus variant to have a short-lived impact on global energy demand.

The group of producers compromising the Organization of the Petroleum Exporting Countries (OPEC) and allies including Russia has raised its output target each month since August by 400,000 barrels per day (bpd).

Current plans would see OPEC+ again raise the target by 400,000 bpd for February, leaving about 3 million bpd in cuts to unwind by September, in line with an agreement last July.

OPEC+ Downplays Omicron’s Impact on Demand

In a technical report seen by Reuters on Sunday, OPEC+ played down the impact on demand of the Omicron variant, saying it would be “mild and short-lived” and was upbeat about economic prospects.

“The impact of the new Omicron variant is expected to be mild and short-lived, as the world becomes better equipped to manage COVID-19 and its related challenges,” the Joint Technical Committee (JTC) report said.

“This is in addition to a steady economic outlook in both the advanced and emerging economies,” it added.

American Petroleum Institute Weekly Inventories Report

The API estimated the inventory draw for crude oil to be 6.432 million barrels, after analysts predicted a much smaller 3.40 million barrel draw.

Additionally, the API reported a large build in gasoline inventories of 7.061 million barrels for the week ending December 31. Distillate stocks also saw an increase in inventory of 4.340 million barrels for the week. Stockpiles at the Cushing, Oklahoma futures hub were also up by 2.268 million-barrels during the week.

Short-Term Outlook

The move by OPEC+ to increase daily production by 400,000 bpd in February was widely expected so we’re seeing a limited impact on prices early Wednesday.

At its meeting on December 2, WTI crude oil was trading at $65.52. Now it’s $80.00 and OPEC+ has added an additional 400,000 barrels per day in December with more coming in January and February.

Meanwhile, the jury is still out on the impact of Omicron on demand although the market seems to be betting it would have a limited effect on demand.

Conditions could change quickly, however. Just look at the jump in gasoline stockpiles in the API report. Traders took notice of this number, but are waiting to see if it develops into a trend.

Today’s U.S. Energy Information Administration (API) weekly inventories report could set the tone in the session after it is released at 15:50 GMT. Ahead of the report, traders are pricing in a 3.5 million barrel draw, while awaiting a possible surprise in gasoline stockpiles.

For a look at all of today’s economic events, check out our economic calendar.

Published by

James Hyerczyk

James A. Hyerczyk has worked as a fundamental and technical financial market analyst since 1982. His technical work features the pattern, price and time analysis techniques of W.D. Gann.