Daily Fundamental Oil Price Forecast – WTI Hits One-Year Low as China's COVID Protests Raise Demand Concerns

Western Texas Intermediate and worldwide-standard Futures contracts for Brent crude oil are trading significantly lower as large demonstrations in China over harsh COVID-19 regulations have stoked fears of a worldwide recession and a decline in fuel consumption.

January WTI crude oil futures are trading at $73.97, down $2.31 or -3.03%, while February Brent crude oil futures are selling at $81.34, down $2.37 or -2.88%. Friday's closing price for the United States Oil Fund ETF (USO) was $66.66, down $0.75 or 1.11%.

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The confusion surrounding Group of Seven (G7) policies contributes to the selling pressure and uncertainties preceding the December 4 OPEC+ meeting. The upheaval in China also drives up the safe-haven U.S. dollar, which reduces global demand for crude priced in dollars.

Protests in China over the government's tough anti-COVID regulations are creating sufficient economic uncertainty to deter investors from purchasing riskier assets such as crude oil.

The severe impact of China's COVID limits on its economy has raised concerns about gasoline demand. Authorities have implemented numerous steps to stimulate economic growth, but there is yet little proof that anything is effective. The People's Bank of China (PBOC), the nation's central bank, announced on Friday that, beginning December 5, it would reduce the reserve requirement ratio (RRR) for banks by 25 basis points (bps).

According to Reuters, Group of Seven (G7) and European Union diplomats have been negotiating a price restriction of between $65 and $70 per barrel for Russian oil, with the intention of reducing revenue to fund Moscow's military offensive in Ukraine without upsetting global oil markets.

The anticipation of this strategy had supported prices for weeks prior to the cancellation of a meeting of European Union government representatives set for the evening of November 25 to debate the matter. Last Thursday, EU leaders were divided over the appropriate price cap for Russian oil.

The price ceiling is scheduled to go into force on December 5, at the same time as an EU ban on Russian crude.

On December 4, the Organization of Petroleum Exporting Countries (OPEC) and its allies, including Russia, will convene as OPEC+.

Through 2023, OPEC+ agreed in October to lower its production target by 2 million barrels per day.

At this upcoming meeting, OPEC+ will discuss Western ideas for a price ceiling on Russian oil, as well as the market's state and equilibrium.

OPEC+ serves as a wildcard. Until the group agrees to a further decrease of the production quota, the price of oil will likely continue to decline.

Others argue that the U.S. may be able to prevent a rapid decline in oil prices by replenishing its strategic petroleum reserves (SPR). However, this may be challenging given the Biden Administration's dedication to reducing fuel prices.