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Oil rushes to $100 per barrel


Relevance up to 11:00 2022-01-16 UTC+00

Oil began in 2022 in the same way as it ended in 2021, with the growth of futures quotes and the expansion of backwardation, when contracts with short deadlines are more expensive than with more distant ones, since buyers want to buy black gold now, not later. A month ago, the price gap between March and April futures was about $ 30 cents. It has now risen to $ 70 cents. It seems that investors are not afraid of Omicron. They are betting on the growth of global demand with a limited supply volume. Oil is added to the fire by large banks, shocking forecasts about the rise in oil prices to triple digits. For example, Bank of America sees that this will happen in the second quarter of this year.

Backwardation in the oil market

Although Omicron is a more contagious COVID-19 strain than Delta, it does not lead to a sharp increase in the number of hospitalizations and deaths. This gives grounds for European governments to abandon previously imposed restrictions. The EU economy will not slow down seriously, which is good news for demand and prices for black gold.

Meanwhile, OPEC+ is not just not going to increase production beyond the plan. The organization is simply not able to do this. Due to the pandemic, investment in exploration and production has declined, and supply is currently suffering from this. Its slower growth compared to demand leads to a gradual depletion of global oil reserves. The market is moving to a deficit. And this is a reason for joy for the “bulls” on Brent and WTI.

Dynamics of global oil reserves

The conjuncture of the physical asset market is reflected in the urgent. In the week to January 10, 120 thousand lots of call options for the North Sea variety were sold at $100, $125, and $150 per barrel. We are talking about an amount equivalent to more than 60 supertankers with oil.

Despite the obvious headwinds, the “bears” for Brent and WTI are not going to just throw out a white flag. They are seriously counting on Joe Biden, the slowdown in China’s economy due to COVID-19, a strong US dollar, and the emergence of a new, more deadly than Delta, a strain of coronavirus. The White House intends to throw all its forces into the fight against inflation and for this purpose sells black gold from strategic reserves and puts pressure on Saudi Arabia. The Fed’s rate hike at three meetings in 2022 should theoretically support the dollar and weaken the position of oil, which is quoted in the US currency. Finally, no one knows if a new variant of COVID-19 will arise?

In my opinion, the arguments of the “bulls” look more weighty than those of their opponents, which will allow black gold to continue the northern campaign.

Technically, the targets of 88.6% and 161.8% for the “Bat” and “Crab” patterns indicate that the potential of the upward movement of Brent is far from exhausted. Curiously, the last target is located near the psychologically important mark of $100 per barrel. The recommendation is to buy.

Brent, the daily chart

*The market analysis posted here is meant to increase your awareness, but not to give instructions to make a trade.

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