Daily Market Recap – USOIL What’s in store for 2022

Oil prices retreated throughout November in line with stock markets after a rise that started in August. However, the price of oil is being boosted by the very good supply and demand figures published by the Energy Information Administration.

The market needs to assess the impact of future demand in an environment where global central banks are reducing their stimulus measures. The oil market seems to be ignoring the Fed's more hawkish tone and has even ignored the surprise rate hike in the UK.

Despite the stabilization of prices over the last few weeks, an upward breakout is likely. The global rate tightening cycle will not slow demand enough to create a surplus of oil. Despite the International Energy Agency's bold and exclusive prediction of a surplus, the lack of investment in midstream production, as well as the Biden administration's war on fossil fuels, could leave a significant supply shortfall in the new year.

Global inventories are seen to be falling, below average, and could fall further as global refiners are forced to increase production to meet strong product demand.

In addition, the geopolitical situation will need to be monitored as it could inflame prices. Russia still has troops on the border with Ukraine. The US has asked European countries to be prepared to apply new sanctions to the Russian oil sector if Vladimir Putin decides to act in Ukraine. This will of course be very difficult for Europe, as its poorly planned energy transition has left the whole continent vulnerable to energy price shocks and energy shortages.

The other thing to watch out for is again the health situation for 2022. Can the new Omicron variant completely derail the recovery？ For the time being, this is doubtful, as countries seem capable to fight this virus, which is less virulent but more contagious. However, we cannot exclude that the new virus will slow down growth and postpone a return to normal. But, in any case, the appearance of the variant has not led to a severe fall in prices.

Demand for oil was already at a record high before the latest variant of the coronavirus arrived, and demand for air travel should continue to recover.

From a technical perspective, oil prices started a correction in early November in an uptrend that allowed crude oil prices to reach strong support at $61.75. The long low wick that appeared at this point indicates the presence of buyers and provides a solid base for bullish recovery.

Prices could therefore return to and exceed the 2021 high of $85.10 and continue towards the psychological $100 level. It is likely that this level would be sufficient for OPEC to open the production valves.

 (Chart Source: Tradingview 29.12.2021)

This positive scenario would be abandoned with a close below support and even more so below the 200-period moving average often seen as the boundary between a bullish and bearish market. In this case, a fall to the right of polarity below $44 would be possible.

Disclaimer: This material has been created for information purposes only. All views expressed in this document are my own and do not necessarily represent the opinions of any entity.