Middle East

Oil embarks on a bullish wave in 2022 as demand concerns diminish

Oil has been a huge success since 2022.

The market, which should have suffered a surge in surplus last week, has instead exceeded $ 80 a barrel as global demand has curbed Omicron varieties and supply constraints have hit producers from Canada to Russia. rice field.

With option deals that investment banks demand higher prices and evoke the prospect of a crude oil spiral above $ 100, this product could add to the pain of inflation felt by major consumers.

Such a rally would be bad news for a country that consumes a lot of fuel. It will also be a big blow to US President Joe Biden, who has spent a lot of time and effort lowering prices and coordinated the global release of strategic petroleum reserves.

“The bullish sentiment has regained the story,” said Michael Tran, a commodity strategist at RBC Capital Markets. “With improved demand, tighter inventories, and doubts about OPEC’s ability to rise further, the arrow in the direction of progress shows further optimism.”

Fluctuations in oil prices are almost immediately passed on to the cost of final products such as gasoline, diesel and jet fuel, so they feel more sensitive and quicker than any other product. Riots broke out across Kazakhstan this month after the Kazakh government allowed prices to rise for liquefied petroleum gas, a major road fuel.

Prices, a dynamic tool, are closely monitored by central banks trying to curb inflation, while driving economic growth as countries emerge from Covid.

Regarding oil demand, OPEC and its producers’ allies have shown that they are confident that the virus will not hinder recovery, and will continue their strategy of gradually recovering production that was stopped during the pandemic. To do.

The group still believes the market is oversupplied, but this quarter’s forecasts are no longer significantly pessimistic as supply growth from rivals is disappointing. The alliance estimates it will exceed 1.4 million barrels per day in the first quarter, 25% less than predicted a month ago. Global consumption is expected to recover 4.2 million barrels per day this year, with demand expected to exceed 100 million barrels per day by June.

Severe freezes in Canada and the northern United States have disrupted oil flows, pushing up prices in the same way that US stockpiles are declining. Russia failed to increase oil production last month, despite a significant increase in OPEC + quotas. This shows that Russia has deployed all currently available production capacity. Protests in Kazakhstan have temporarily adjusted production in the country’s largest Tengiz oil field.

Similarly, Libya, which pumped more than one million barrels each month last year, is now producing about 25% less than that, but in Nigeria, the flow of Bonnie Wright, the former major export grade, has dropped significantly. doing. delay. Most recently, until 2020, it averaged over 200,000 barrels per day. In December, the country pumped 1.35 million barrels of crude oil per day, according to data from the Ministry of Petroleum.According to the data edited by, it will be the worst in a few years Bloomberg.

Not only headline prices, but also the oil forward curve is becoming even more bullish. More immediate contracts are ordering a big premium later months. This indicates that the buyer is willing to pay a higher amount to secure the barrel more quickly. March Brent futures are trading in a barrel, about 70 cents higher than the April contract. This is compared to about 35 cents a month ago.

The US physical market is also showing that supply is getting tighter and tighter. Major oil grades have been strengthened in recent years as export demand is stable and supply is disrupted due to the cold.

In the long run, US shale production is showing signs of moderate growth. Most listed oil companies are refraining from opening spigots, despite rising prices, as shareholders still say they don’t want to see explorers increase production. And so far, $ 100 doesn’t seem to change that.

In the options market, bullish bets on US oil and Brent have exceeded $ 100 this year and next week. Over 120,000 lots of US and Brent crude oil call options of $ 100, $ 125 and $ 150 were traded this week. In barrel terms, this is equivalent to trading over 60 supertankers full of crude oil in five days.

Still, the obstacles remain. China’s worst Covid-19 outbreak since its first rekindling in Wuhan could upset oil streak by squeezing demand growth for the world’s largest oil importers.

Biden’s strategic oil reserves release has not held prices down for a long time, but his administration has left the door open for further action as needed.

The threat of the US Federal Reserve’s hike rate to counter rising inflation could put pressure on oil as it pushes the dollar up, making oil more expensive for holders of other currencies.

But for now, the market remains bullish.

Jeff Curry, Head of Global Research at Goldman Sachs Group, said: Bloomberg TV Interviews that only two countries in the world, Saudi Arabia and the United Arab Emirates, can pump more today than they did in January 2020, before the pandemic actually hit demand. This could tighten the oil market in the next three to six months, he said. Morgan Stanley expects Brent to rise to $ 90 a barrel by the third quarter. It is estimated that last year, observable stockpiles decreased by about 690 million barrels.

“I think there is more power ahead,” said bank analysts, including Martin Rat. “By the second half of the year, inventories and reserves will decline, demand will recover further by 2023, and investment is still limited, so the oil market seems to be heading towards a period of little safety.”

https://gulfbusiness.com/oil-rides-into-2022-on-bullish-wave-as-demand-fears-fade/ Oil embarks on a bullish wave in 2022 as demand concerns diminish

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