Oil Price Fundamental Daily Forecast – OPEC+ Suspension of Russian Oil Would Cap Gains
U.S. West Texas Intermediate and international-benchmark Brent crude oil futures are edging higher on Wednesday after failing to confirm yesterday’s potentially bearish closing price reversal top. Prices are firming after European Union leaders agreed to a partial and phased ban on Russian oil and as China ended its COVID-19 lockdown in Shanghai.
At 09:20 GMT, July WTI crude oil is trading $116.48, up $1.81 or +1.58%. August Brent crude oil is at $117.44, up $1.84 or +1.59%. On Tuesday, the United States Oil Fund ETF (USO) settled at $85.51, up $0.05 or +0.06%.
Tuesday Recap – Strong Start, Weak Finish
WTI and Brent crude prices moved higher and reached a 2-month high on Tuesday, lifted by the EU’s decision to ban most Russian oil imports by the end of the year.
“The European Council agrees that the sixth package of sanctions against Russia will cover crude oil, as well as petroleum products, delivered from Russia into Member States, with a temporary exception for crude oil delivered by pipeline,” according to a statement released by the European Council today.
Traders are expecting the move to effectively cut 90% of Russian oil imports from that country to the EU by the end of this year, according to estimates.
In other news, a drop in COVID-19 cases in Beijing and improved Chinese PMI data raised hopes that energy demand in the world’s second largest economy will pick up.
Both events contributed significantly to the sharp rise in oil prices.
However, not all of the news was bullish enough to sustain the intraday rally. Pulling down prices late in the session and into negative territory were reports that some of OPEC+ members are in favor of suspending Russia’s participation in the group’s oil production deal.
Daily Forecast
While the EU embargo news and China’s easing of lockdowns is setting the tone early Wednesday, based on yesterday’s late session plunge, it looks as if Russia’s ousting from OPEC+ could be the bigger story, and thus have a larger impact on prices over the near-term.
The Wall Street Journal wrote, citing OPEC delegates, while there was no formal push for OPEC countries to pump more oil to offset any potential Russian shortfall, some Gulf members had begun planning an output increase sometime in the next few months.
Since this issue impacts supply, traders will be monitoring any OPEC+ news to see if the plan begins to gain traction.
Looking ahead to late Wednesday’s American Petroleum Institute’s (API) weekly inventories report, traders are predicting a drop in crude oil inventories, but an increase in gasoline and distillate stockpiles.
For a look at all of today’s economic events, check out our economic calendar.
This article was originally posted on FX Empire
