Oil Price Fundamental Daily Forecast – Weak on Fear of Lower Demand

James Hyerczyk

U.S. West Texas Intermediate and international-crude oil futures are under pressure for a third day in a row on Thursday on growing concerns that the spread of a newly identified respiratory virus from China may drive down fuel demand at the same time a report showed oil inventories in the United States rose last week.

At 05:16 GMT, March WTI crude oil is trading $55.74, down $1.00 or -1.76% and March Brent crude oil is at $62.27, down $0.94 or -1.49%.

Coronavirus Update

From CNBC, the so-called coronavirus has killed 17 people because of respiratory illness since it emerged late last year in the Chinese city of Wuhan. Additionally, more than 540 cases of the new virus have been confirmed and authorities in Wuhan have shut transportation networks and are urging residents not to leave to help prevent the contagion spreading.

“We estimate a price shock of up to $5 (a barrel) if the crisis develops into a SARS style epidemic based on historical oil price movements,” JPM Commodities Research said in a note.

American Petroleum Institute Weekly Storage Report

The API estimated on Wednesday a surprise crude oil inventory build of 1.57 million barrels for the week-ending January 17. Analysts were looking for a 1 million barrel draw in inventory.

The API this week also reported another large build of 4.5 million barrels of gasoline for the week-ending January 17, after last week’s large 3.2-million-barrel build. Traders were pricing in a 3.090-million barrel-build for the week.

Distillate, too, saw inventories increase, by 3.5 million barrels for the week, adding onto last week’s large 6.8-million barrel build, while Cushing inventories fell by 429,000 barrels.

Daily Forecast

It looks like the coronavirus story is not going to go away over the near-term and actually conditions could worsen. It’s difficult for professionals to gauge the impact on demand at this time so we may not see a bottom until the speculators stop shorting the market.

Shorting and long-liquidation because of uncertainty should keep pressure on prices. However, since we are in a news driven market, the selling could stop on a dime, making the market ripe for a fast-short-covering rally.

At 16:00 GMT, the U.S. Energy Information Administration will release its latest weekly inventories report. Traders are expecting a draw of about 100,000 barrels.

This article was originally posted on FX Empire