Recap: The oil market extended its rally for a second day on Thursday on concerns over market tightness. In its monthly report OPEC said that world oil demand may increase more this year as the global economy sees a strong recovery from the pandemic. The market was also supported by the news that Russia and Belarus began joint military exercises on Thursday. Meanwhile, the market awaited the outcome of the U.S.-Iran nuclear talks, with Russia’s Foreign Minister, Sergei Lavrov, stating there was still a long way to go before a 2015 deal with world powers could be revived, while the White House publicly pressured Iran on Wednesday to revive the nuclear agreement quickly. The crude oil market traded to a low of $89.03 early in the session following the CPI report, which showed the largest increase in inflation in 40 years. The market later bounced higher and rallied over $2 as it breached its resistance at Tuesday’s high of $91.68 and posted a high of $91.74. However, the market erased some of its gains in afternoon trading as it settled in a sideways trading range ahead of the close. The March WTI contract ended the session with modest gains, settling up 22 cents or 0.25% at $89.88, while the April Brent contract settled down 14 cents or 0.15% at $91.41. The product markets ended the session higher, with the heating oil market settling up 23 points at $2.8272 and the RB market settling up 1.2 cents at $2.6654.
Technical Analysis: The oil market is seen trading sideways as it awaits the outcome of the U.S.-Iran nuclear talks. The market is also looking at developments regarding the Russia-Ukraine crisis after Russia and Belarus began military exercises that some reports are seeing as preparation for an invasion of Ukraine. The market is seen remaining supported ahead of the weekend, barring any bearish news. The market is seen finding support at its low of $89.03, $88.41, $87.54, its 50% retracement level off a low of $81.90 to a high of $93.17, followed by $86.75, $86.55, $86.21, its 62% retracement level and the $85.00. Resistance is seen at its high of $91.74, $92.73 and $93.17.
Fundamental News: OPEC said there was upside potential to its forecast for world oil demand in 2022 as the global economy posts a strong recovery from the coronavirus pandemic and sectors like tourism benefit. In its monthly report, OPEC said it expected world oil demand to increase by 4.15 million bpd this year, unchanged from its forecast last month, following an increase of 5.7 million bpd in 2021. It increased its 2021 demand figure by 17,000 bpd from its previous estimate. World consumption is expected to surpass the 100 million bpd mark in the third quarter, in line with last month's forecast. Oil demand is forecast to average 100.8 million bpd in 2022. The report showed OPEC output in January increased by just 64,000 bpd to 27.98 million bpd, undershooting the 254,000 bpd rise that OPEC is allowed under the deal. The growth forecast for overall non-OPEC supply in 2022 was left unchanged at 3.02 million bpd, as was that for production of U.S. tight oil, another term for shale. OPEC said it expects the world to need 28.92 million bpd from its members in 2022, up 100,000 bpd from last month and theoretically allowing further increases in output.
U.S. President, Joe Biden, said he “will work like the devil to bring gas prices down.” Earlier, President Biden said the January consumer price index report was a reminder the budgets of Americans are under real strain, adding that his administration was using "every tool" it has to tackle the issue.
Raymond James analyst, Marshall Adkins, sees crude oil trading at $125/barrel by the second quarter.
Bloomberg News oil strategist, Julian Lee, said Russia and Europe are vital to each other when it comes to oil. He said any scenario in which westbound flows from Russia falls would have a big impact on what is already a tight market.
Early Market Call – as of 8:10 AM EDT
WTI – Mar $91.25, up $1.37
RBOB – Mar $2.6919, up 2.65 cents
HO – Mar $2.8641, up 3.69 cents
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