Crude oil (CL) futures
Fundamental Analysis

Oil Holds Steady Ahead of OPEC+ Meeting & EU Embargo

  • The market awaits more clarification on the impending EU embargo on Russian products.
  • Data revealed a less-than-anticipated increase in US crude stocks.
  • Economists expect the global economy to grow by just 2% this year.

Following a smaller-than-expected increase in US crude stocks, oil prices held steady on Thursday as investors await more information on supply-side factors, such as the upcoming OPEC+ meeting and the impending EU ban on refined Russian goods.

In a note published on Thursday, Citi analysts stated that while OPEC+ delegates prepare for their next meeting, the market awaits more clarification on the impending EU embargo on refined Russian products and the resulting reshuffle of trade flows.

According to Citi analysts, widespread disruptions are projected to emerge due to the impending EU embargo on refined Russian products.

Oil prices were also barely altered after statistics revealed a less-than-anticipated increase in US crude stocks.

US crude oil inventories (Source: Investing.com)
US crude oil inventories (Source: Investing.com)

According to information from the Energy Information Administration (EIA), crude stockpiles increased by 533,000 barrels to 448.5 million in the week ending January 20. The EIA reported that this fell far short of expectations for a 1 million barrel increase.

The rise in oil prices was capped by the increase in stocks, which resulted from weaker fuel consumption and broader worries about a faltering global economy.

A Reuters poll of economists found that they expect the global economy to grow by just 2% this year, with the larger risk being a further downward revision of their prediction. That went against the general market optimism that had been there from the year’s start.

Energy price declines, a fall in inflation from multi-decade highs in most nations, the unexpected resilience of the eurozone economy, and China’s economic reopening have prompted traders to predict a milder slump.

However, the general mood among economists was much more pessimistic, with growth predictions for this year and the following year being reduced from 2.3% and 3.0% in an October 2022 poll to 2.1% and 2.8%, respectively. Their more pessimistic attitude runs contrary to certain notable bank upgrades that occurred in recent weeks.

At a meeting on February 1, the Organization of the Petroleum Exporting Countries (OPEC) and its allies, also known as OPEC+, are expected to approve the group’s existing output levels.

The meeting will occur when oil prices have increased in 2023 to around $90 per barrel amid expectations that Chinese demand will increase.