Crude Oil Prices Inch Up Amid Winter Storms in US

Crude oil spot prices inched up towards 80 USD per barrel amid a spike in demand for heating fuel, and fierce winter storms in the US and Canada.

Market expectations of a recession in 2023 weighed on crude oil prices for most of December. These were countered by winter storms and improved global growth prospects now that China is set to re-open its borders to visitors. In the latest developments, Hong Kong will drop COVID-19 social distancing restrictions by the end of December in a move that’s likely to support market sentiment.

Which force will prevail in the crude oil markets as January approaches - recession fears, winter weather demand or China’s brighter growth outlook? In the short term, demand for heating fuel should support crude oil prices during the winter months. The medium-term outlook is less clear, because of supply-side pressures stemming from the war in Ukraine and the chances of a global recession.

On Thursday, the Energy Information Administration (EIA) is set to release its Crude Oil Stocks Change report for the week ending December 23. Previously at the level of minus 5.894 million barrels, the latest result is seen at minus 1.575 million barrels. If the draw is more than expected, it could support crude oil prices. Then again, the final figure could be in line with expectations, or lower than expected, and the bearish trend might weigh on prices.

One of the primary triggers of recession fears is the Federal Reserve’s next interest rate decision. Market fears might play out through January ahead of the Fed’s two-day meeting set for January 31 – February 1.

The big question is whether US inflation rose or fell in December and the answer will come on January 12 when the results will be released. Consumer prices rose by 7.1 percent in November, marking a decline from the previous month when they were at the level of 7.7 percent. This was met by the Fed’s 0.5 percent interest rate hike, less hawkish than previous periods.

In other financial news, earnings season is approaching in January. Mega-cap financial stocks are set to report Q4 earnings starting on January 13, including JPMorgan, Bank of America, Wells Fargo & Co and Citigroup. Global stock markets could be in for volatile periods in early January, depending on factors such as the Fed’s rhetoric, large-cap company outlooks, and inflation news.

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This material does not contain and should not be construed as containing investment advice, investment recommendations, an offer of or solicitation for any transactions in financial instruments. Please note that such trading analysis is not a reliable indicator for any current or future performance, as circumstances may change over time. Before making any investment decisions, you should seek advice from independent financial advisors to ensure you understand the risks.