Crude Oil Price Outlook: Holding up Well Despite Demand Fears

[MongiIG]

CRUDE OIL PRICE, NEWS AND ANALYSIS:

• Over the past week, the price of US crude oil has eased from a high just above $73 per barrel to just below $70 currently on concern that the Omicron coronavirus variant will damage the global economic recovery from the Covid-19 pandemic and therefore demand for oil.
• However, the decline has been relatively modest against a background of rising output and a smaller than predicted decline in stockpiles, suggesting some underlying strength in the commodity.

 

CRUDE OIL PRICE HOLDS UP WELL

The price of US crude oil has been slipping back over the past week on fears that the spread of the Omicron coronavirus variant will slow the global economic recovery from the downturn caused by the Covid-19 pandemic and therefore reduce the demand for oil.

From a recent high of $73.18/barrel on December 9 the price dropped to a low of $69.33 late Tuesday but is steadier Wednesday despite a forecast by the International Energy Agency that demand for oil will be lower next year than it previously expected. In its Oil Market Report, the IEA revised down its outlook by 100,000 barrels per day for both the remainder of this year and for 2022.

That report – which contrasts with Monday’s increase in the Organisation of the Petroleum Exporting Countries’ forecast for world oil demand in the first quarter of next year – had surprisingly little impact on the price.

US CRUDE OIL PRICE CHART, ONE-HOUR TIMEFRAME (DECEMBER 6-15, 2021)

Source: IG (You can click on it for a larger image)

CRUDE OUTPUT RISING

Concerns about oil demand are rising at the same time as output is increasing, particularly in the US. Moreover, data released Tuesday by the American Petroleum Institute showed US crude inventories fell by only 815,000 barrels in the week ended December 10 compared with a 2.6 million-barrel drop predicted by analysts polled by the news agencies. The relative stability of the oil price is therefore even more surprising and a climb back above $73 would thus be no surprise.

RETAIL TRADER DATA BULLISH TOO

As for the IG positioning figures, the latest retail trader data show 71.06% of traders are net-long US crude, with the ratio of traders long to short at 2.46 to 1. However, the number of traders net-long is 6.00% lower than yesterday and 11.18% lower than last week, while the number of traders net-short is 1.85% higher than yesterday and 4.89% higher than last week.

Here at DailyFX, we typically take a contrarian view to crowd sentiment, and the fact traders are net-long suggests the price may continue to fall. Yet traders are less net-long than yesterday and compared with last week. Recent changes in sentiment therefore warn that the price trend may soon reverse higher despite the fact traders remain net-long.

 

Written by Martin Essex, Analyst, 15th December 2021. DailyFX