Omicron's demand disruption in the oil market was less than expected, which, coupled with worsening supply concerns, pushed Brent prices to their highest levels in more than 7 years. And this, is far from the limit. Vitol, the largest oil trader in the world, considers the current prices for oil and backwardation in the market, when futures contracts with near-term expiration are more expensive than with more distant ones, absolutely justified. While Goldman Sachs shocks the "bears" with a forecast for the growth of the North Sea variety to $100 per barrel.
Dynamics of spreads for oil contracts with different maturity dates
According to a major bank, Brent will reach this level in the second half of 2022. In the first quarter, the average price will be $90, in the second - $95 per barrel. Goldman Sachs believes that a combination of leaps and bounds in demand and supply disruptions will cause the market deficit to be higher than the consensus forecast, which will push futures prices higher.
Indeed, despite the increase in the number of COVID-19 infections, countries are in no hurry to introduce restrictions, and the demand for oil and petroleum products from the aviation industry has not been affected as much as previously thought. At the same time, low temperatures in the Northern Hemisphere are pushing up gas prices and forcing consumers to switch to cheaper forms of energy. The way China is tough on suppressing coronavirus outbreaks suggests that a significant reduction in demand from the country is not to be expected.
At the same time, a decrease in investment in production does not allow producers to increase their volumes as they would like. Russia is a typical example. Due to the decline in drilling in 2020-2021, Bloomberg estimates the potential for oil production growth in Russia at 60,000 b/d in the first half of 2022, and under the terms of the agreement with OPEC+, Moscow needs to increase production by 100 b/d per month. Other members of the Alliance face similar problems.
And then the Houthi militants launched a series of strikes on the UAE, the third-largest producer of black gold in OPEC. The emirates claim they are ready to respond to terrorist attacks, while the Houthis are frightening with new attacks. Tension in the Middle East remains, which contributes to the rally in Brent and WTI.
Skyrocketing demand, supply disruptions, and widening deficits are allowing hedge funds to build long positions in major crudes. In the week of January 11, they did it at the fastest pace in the last 14 months. The long-to-short ratio of the 6 most important oil-related futures contracts is currently 6.2 to 1 compared to 3.8 to 1 in mid-December.
Technically, the first target for the Wolfe Wave pattern at $87.5 per barrel was executed on Brent's weekly chart. The inability of the bulls to overcome this level may lead to a short-term correction. The pullback should be used to form long positions in the direction of $100 and $110 per barrel.
Brent, Daily chart
