Market Analytics and Technical Considerations
Key Points
On the back of signs of a tighter supply, a weaker dollar, and optimism regarding a recovery in Chinese demand, oil prices rose by more than 2% on Wednesday.
However, the gains were constrained by the possibility that OPEC+ would maintain unchanged output at its upcoming meeting.
By 10:44 GMT, Brent crude futures had risen $2.06, or 2.48 percent, to $85.09 per barrel to $85.95, the more volatile February Brent crude contract gained 2.02%.
Crude futures for U.S. West Texas Intermediate (WTI) rose $1.69, or 2.16 percent, to $79.89.
Expectations of a tighter crude supply prompted support.
U.S. unrefined petroleum stocks dropped by 7.9 million barrels in the week finished Nov. 25, as indicated by market sources referring to American Petrol Organization figures on Tuesday.
The U.S. Energy Information Administration is expected to release official figures on Wednesday. API/S]The International Energy Agency’s chief, Fatih Birol, told Reuters on Tuesday that the agency anticipates that Russian crude production will be reduced by approximately 2 million barrels/day to the end of the first quarter of 2023.
On the demand side, optimism regarding a recovery in China’s demand, the world’s largest crude buyer, provided additional support.
The market speculated that weekend protests might result in an easement of travel restrictions, and China reported fewer COVID-19 infections than on Tuesday.
On Wednesday, the COVID prevention regulations in several districts of the southern city of Guangzhou were relaxed.
A fall in the U.S. dollar was likewise negative at costs. Demand rises as a result of a weaker dollar, which makes oil contracts backed by the dollar more affordable for holders of other currencies.
Investors are looking for clues about when the Fed will slow the pace of its aggressive interest rate hikes when Fed Chair Jerome Powell speaks on Wednesday about the economy and labor market.
A source with direct knowledge of the situation told Reuters on Wednesday that the OPEC+’s decision to hold its meeting on December 4 capped gains and virtually indicated that there was little likelihood of a change in policy.
Market fundamentals favor another cut, especially given the uncertainty over China’s COVID situation… Failure to do so risks sparking another selling frenzy.
