Oil prices rose today amid expectations that :
- The US will not experience a significant economic shutdown due to the omicron surge.
- Given soaring natural gas prices in Europe and Asia, oil is likely to remain positive. Asian liquefied natural gas (LNG) prices surged this week, despite weak Asian demand, as upside risks in the European gas market remain the main driver of price movements.
- In addition, the increase in natural gas is also due to a colder US winter. Atmospheric G2 said today that sub-normal temperatures are expected in the western and central North US from January 1-5, and below-normal temperatures in the central US will last through January 10.
- Comments from Russian Deputy Prime Minister Novak supported crude oil prices. He said that global demand for crude would continue to recover due to consumption growth as countries learn to coexist with the virus. However, he added that the price of oil in 2022 may hover around $75 per barrel with a possible fluctuation of around 10% on both sides.
- Crude oil prices also received support from reduced supplies from Libya, as militias blocked the flow of crude from Libya’s Sharara oil field to ports in Zawiya and Mellitah.
- Iranian crude exports are unlikely to return to the market anytime soon. A senior US official said that Iran had not shown seriousness in recent talks to rejoin the 2015 nuclear deal, and the US was preparing for a scenario in which restoring the deal would not be possible.
- An EIA report last week showed US crude inventories on December 17 were -7.9% below the 5-year seasonal average. US crude oil production in the week ended December 17 fell -0.9% w/w to 11.6 million bpd, which was -1.5 million bpd (-11.5%) below the February-2020 record high of 13.1 million bpd.
- Operating US oil and gas rigs rose to their highest level since April 2020 in the past week, according to energy services firm Baker Hughes. The overall number now stands at 586, signaling an increase in output in the coming months.
USOil is trading at $75.15 while UKOil is at $78.62 at the time of writing. From the USOil curve above, the decline was recorded at ±25% from the annual peak of $83.77 to the support level. However the price has returned the decline to the level of 61.8%FR around $75.50. The 200 EMA is still providing support to the upside, although the gains are no longer significant after the 4 day rally; it is still possible that it will reach $78.53 as seen from the RSI line above the 50 level and OSMA on the buy side, though the MACD line is not yet at above the neutral line. Prices are likely to be choppy in the next few days. The closest price support is the recently broken resistance at $73.08, and a move below this level is likely to consolidate. However, as long as this level holds, the bullish outlook is still possible, although limited to the projections of FE100% & FE138.2%.
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Ady Phangestu
Market Analyst
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