Fundamentals-
A month into 2022 we have seen a slow grind into highs for
CL1!
. This is unusual as seasonally oil trades down this time of year. In part, this can be accredited to growing demand in European markets due to tensions between Russia and Ukraine. I don't expect this demand can or has been priced in efficiently. As we head into February and April, I expect some of the paper barrels to unwind, as somewhat of a stalemate between the EU and Russia has been established. Omicron has been the other big question mark for Oil going into this year. So far cases have been less severe and OPEC stated in early January that production should be on expected pace and to prepare for condensed markets. Furthermore, in January, Oil inventories have stacked up more than expected on multiple occasions even adding 2.4 mil on January 20 (against 1 mil projection). I expect for this trend to continue as we head into slower months for oil and to factor in for near term downside in price. However, on the long term scope I am remaining bullish. Crude imports in the US are down historically and some reversion in this trend makes sense as commerce and travel industries continue to reopen. Furthermore, with the Oil Markets potentially facing sanctions during this presidential term more upside can be expected. Add the fact that emerging economies such as Brazil and Indonesia have purchased major energy companies, adding support to markets these is still a lot to like about energy in the next year. Many banks and other financial institutions have called for $100 oil and I am on the same page, but in a timely manner. More established global demand, tighter monetary policy around energy use/trade, and the leveraging of energy markets by countries across the world points to $100 later this year.
Technicals-
Oil has traded above the 2021 High very slowly, showing clear signs of buyer exhaustion. While it looks as though it has topped out, I wouldn't count out one test of supply at 91.36 before downside ensues. I expect oil to trade below 83.07 which would trigger a swift downside move as paper longs cover and frantic offers follow price down. I would like to see downside capped around 73.50 in April at just above the Value of this range. From there I expect for a new value be established around 76.45. If we trade back to current value at 71.11, it is probable we trade lower towards discount pricing at 65.36 though I don't expect demand to falter to that degree. After establishing value at or around 76.45 I believe we can trade back up into 100 in late August. Some topside levels to consider are 91.36 which I believe will serve as a near term cap to prices and 94.72 which is a major historical level and will likely act as resistance during an up-move.
A month into 2022 we have seen a slow grind into highs for
CL1!
. This is unusual as seasonally oil trades down this time of year. In part, this can be accredited to growing demand in European markets due to tensions between Russia and Ukraine. I don't expect this demand can or has been priced in efficiently. As we head into February and April, I expect some of the paper barrels to unwind, as somewhat of a stalemate between the EU and Russia has been established. Omicron has been the other big question mark for Oil going into this year. So far cases have been less severe and OPEC stated in early January that production should be on expected pace and to prepare for condensed markets. Furthermore, in January, Oil inventories have stacked up more than expected on multiple occasions even adding 2.4 mil on January 20 (against 1 mil projection). I expect for this trend to continue as we head into slower months for oil and to factor in for near term downside in price. However, on the long term scope I am remaining bullish. Crude imports in the US are down historically and some reversion in this trend makes sense as commerce and travel industries continue to reopen. Furthermore, with the Oil Markets potentially facing sanctions during this presidential term more upside can be expected. Add the fact that emerging economies such as Brazil and Indonesia have purchased major energy companies, adding support to markets these is still a lot to like about energy in the next year. Many banks and other financial institutions have called for $100 oil and I am on the same page, but in a timely manner. More established global demand, tighter monetary policy around energy use/trade, and the leveraging of energy markets by countries across the world points to $100 later this year. Technicals-
Oil has traded above the 2021 High very slowly, showing clear signs of buyer exhaustion. While it looks as though it has topped out, I wouldn't count out one test of supply at 91.36 before downside ensues. I expect oil to trade below 83.07 which would trigger a swift downside move as paper longs cover and frantic offers follow price down. I would like to see downside capped around 73.50 in April at just above the Value of this range. From there I expect for a new value be established around 76.45. If we trade back to current value at 71.11, it is probable we trade lower towards discount pricing at 65.36 though I don't expect demand to falter to that degree. After establishing value at or around 76.45 I believe we can trade back up into 100 in late August. Some topside levels to consider are 91.36 which I believe will serve as a near term cap to prices and 94.72 which is a major historical level and will likely act as resistance during an up-move.
