Industrial Investment (UK) Crude Oil Daily Review: Many positive forces have boosted, and international oil prices have hit a new high in more than 7 years

As the impact of the Opichron variant on crude oil demand subsided, and geopolitical tensions triggered supply disruption concerns, exacerbating the supply-demand imbalance, coupled with OPEC's bullish outlook for global crude oil demand this year, international oil prices rose sharply on Tuesday, hitting a new high in more than seven years. As of the U.S. close, U.S. crude oil February futures closed up $2.57, or 3.05%, at $86.76/barrel, with intraday highs touching $86.94/barrel and falling as low as $84.07/barrel; Brent crude March futures closed up $2.02, or 2.34%, at $88.52/barrel, with intraday highs touching $88.62/barrel and falling as low as $86.41/barrel.

U.S. crude oil and Brent crude recent month futures prices continue to climb strongly, approaching the $87 and $89 marks, respectively. Market commentators believe geopolitical tensions have driven the latest rise in crude oil prices. Earlier this week, Yemen's Shiite Houthi militia group launched an attack on the UAE, heightening tensions in the region. After drone and missile strikes killed 3 people and triggered a fuel truck explosion, the Houthis have been threatening further attacks on facilities in the UAE. According to Turkish media reports, pipeline operator Botas said an explosion occurred in an oil pipeline in Pazardzek County, Kahraman Marash province, Turkey, which carries about 450,000 barrels of crude oil from Iraq to Turkey every day.

At the same time, tensions between Ukraine and OPEC+ member Russia have also exacerbated the geopolitical premium for oil prices. Russia's invasion of Ukraine will provoke a reaction from countries like Britain. Officials at the UK Foreign Office were told to be prepared to enter "crisis mode" within a short period of time after being notified. According to Bloomberg, the "crisis pattern" does not mean that the British government believes that an invasion is imminent or certain, but rather part of a preventive plan to allow the Office of Foreign Affairs, Commonwealth and Development (FCDO) to act quickly when the state is triggered. However, there are reports that the UK is shipping light, anti-armor, defensive weapons systems to Ukraine to help Ukraine improve its defense capabilities. Meanwhile, the White House said Tuesday that the current tensions present an "extremely dangerous situation." At the same time, IT is expected that NATO may raise the alert level if Russia invades Ukraine, which will require sending reinforcements to the Baltic states and Poland and even southeastern Europe. This, in turn, would pose a challenge to the EU. If Russia does invade, the EU could impose sanctions on Russia, and Russia could cut gas supplies to Europe (energy prices are already extremely high and inflation will put more pressure on the economy).

The latest escalation in geopolitical tensions comes at a time when the global crude oil market looks much more nervous than analysts expected at the beginning of the year. The less-than-expected impact of Omilon on global demand, coupled with the difficulties encountered by some smaller OPEC+ members in increasing production, has widened the supply gap. Goldman Sachs therefore predicts that in the second half of 2022, brent crude oil prices will reach $100 per barrel. The bank explained that the above factors "have made the supply gap in the global oil market even exceed our consensus forecast", which is likely to drive the premium of various physical crude oil varieties relative to future prices in recent weeks.

Market analysts concluded: "If the current geopolitical tensions continue, OPEC+ members cannot achieve a 400,000 bpd increase, macro factors combined with a strong technical outlook, oil prices may push up to the $100 mark." In fact, technical indicators of crude oil have been bullish in recent weeks. U.S. and Cloth Oil have cumulatively gained nearly $20, or nearly 30 percent, since Dec. 20, after constantly refreshing higher highs and lows.

OPEC's sticking to its forecast for strong growth in global oil demand in 2022 on Tuesday has fueled its confidence in continued production growth, and despite the onslaught of the Omicron variant and expectations of rate hikes from many central banks, the group expects oil markets to remain well supported this year. OPEC said in its monthly report released on Tuesday that the impact of the Olmikron strain on oil demand at the end of 2021 was weaker than expected; global crude oil demand is expected to increase by 4.2 million b/d to 100.8 million b/d in 2022; and global crude demand growth is expected to be 5.7 million b/d to 96.6 million b/d in 2021 Global economic growth forecasts for 2022 and 2021 are expected to be 4.2% and 5.5% (previously 4.2% and 5.6%); oil demand in the last three months of 2021 is stronger than expected; OPEC crude oil production increased by 200,000 b/d last December to 27.882 million b/d.

OPEC and its allies (OPEC+) — a coalition of 23 countries led by Saudi Arabia and Russia — have been taking a phased back to production they halted during the outbreak. However, this has actually become a bullish catalyst for the crude oil market, as the alliance has failed to increase supply at the planned pace and some member countries have been unable to increase production as planned due to insufficient investment and turmoil. The report shows that in December last year, OPEC members increased production by only 200,000 barrels per day, while the production increase target was 250,000 barrels. Production in Nigeria has fallen again. OPEC's forecast for global oil demand and supply this year is essentially unchanged from last month's report.

Oil prices rose alongside those in other energy sectors as well as commodities, but Danske Bank strategists said hawkish central banks would put pressure on oil prices. Demand is likely to be close to peaking as central banks may consider tightening monetary policy next year. Prices this year are higher than we expected, but we think it will be temporary. More supply from OPEC+ and a rebound in the dollar should pull down oil prices again. We keep our forecasts unchanged. The reduction in medium-term investment over the past few years will keep oil prices high. We expect the average brent crude oil price to reach $75/barrel in 2022 and $80/barrel in 2023.

It is worth noting, however, that U.S. policymakers are concerned about rising oil prices, want to curb the energy boom, and say they are ready to turn to OPEC for help. A White House spokesman said: "We still have the tools to deal with higher oil prices and will work with OPEC as needed." A spokesman for the National Security Council said the Biden administration's focus is to ensure that oil supply growth can meet demand as the global economy recovers, and that U.S. gasoline prices will fall. The U.S. is expected to deliver 18 million barrels of strategic petroleum reserves (SPRs) to the market in February and March; the U.S. will continue to work with oil-producing and consuming countries to monitor oil prices and negotiate properly with OPEC+ in the context of global economic growth.

Next, market participants will watch the American Petroleum Institute's (API) weekly crude oil inventories report (originally scheduled for Tuesday, postponed by one day to Wednesday due to Monday's Martin Luther King Jr. Anniversary) and the International Energy Agency's (IEA) Short-term Energy Outlook Monthly Report. This follows a decline in API crude inventories of 1.077 million barrels to 401.3 million barrels in the week ended January 7, the seventh consecutive week of declines, and a decrease of 6.432 million barrels in the previous week, a expected decrease of 1.95 million barrels. If the inventory increases, it is expected to threaten the upside of oil prices. OPEC's monthly report focuses on the outlook for global crude oil demand. Despite the emergence and spread of the new coronavirus Omiljung variant strain, countries have only implemented local restrictions, which will support further oil prices if the IEA monthly report is optimistic about the prospect of crude oil demand. In addition, crude oil investors will continue to follow the latest virus developments, the Iran nuclear deal talks and the development of tensions in the Middle East to seek short-term trading opportunities.

DOLLAR INDEX

The dollar index edged lower on Tuesday morning from a low of 95.092 to a one-week high of 95.782 as investors prepared for a possible more hawkish stance on the Fed, with Treasury yields jumping and two-year Treasury yields, which track short-term interest rate expectations, topped 1 percent for the first time since February 2020, adding to the dollar's appeal. The dollar has been under pressure for weeks as markets began to agree on a more balanced outlook for the Fed's policy normalization. In addition, the escalation of geopolitical tensions between Russia and Ukraine has also increased the dollar's safe-haven demand.

Surveys released by the New York Fed showed that the New York State manufacturing index slipped to -0.70 in January from 31.90 in December, well below market expectations to fall to 25.70, the first time the index has fallen into negative territory since June 2020. The new orders sub-index fell to -5.0 from 27.1 in December last year; the house price index paid fell from 80.2 to 76.7; the employment sub-index fell from 21.4 to 16.1; and the six-month business outlook sub-index was 35.1, up from 36.4 in the previous month. With a sharp drop in orders and shipments, a measure of New York State's manufacturing sector in January fell sharply from the previous month, suggesting that the Omiljun strain caused a pullback in activity.

Recent testimonies, speeches and interviews by Fed officials make it clear that the Fed is "going all out to start raising rates in March." Rabobank analysts believe the Fed will raise interest rates every quarter of 2022 unless real economic growth declines. The Fed's next meeting will take place on Jan. 25-26. The Fed will not update economic forecasts, and only Fed Chairman Jerome Powell will issue an official statement and chair a press conference. Since the Fed's policy of curtailment continued until March, the Fed will not raise interest rates in January. Powell is likely to reiterate the hawkish rhetoric he has made in recent weeks and try to convince markets, the public and politicians that the Fed is now beginning to confront inflation. At a press conference after the Fed's policy meeting on Jan. 26, Powell is likely to refer to the Fed's discussions on balance sheet normalization. The minutes of the meeting, to be released on Feb. 16, may reveal more details of the discussion. Last summer, we expressed concern that the Fed would ignore inflation performance. However, we don't know how long it will take for the Fed to see the light of day. Keep in mind that at press time, the Fed still expects interest rates to remain unchanged until 2024! Then, at its December meeting, the Fed, by accelerating the pace of reductions, suggested that rate hikes could begin in March. News in recent weeks from speeches by Fed Chairman Jerome Powell and colleagues has convinced the bank that the Fed has begun to confront high inflation. In fact, they seem eager to show this by taking steps. Therefore, our outlook for 2022 suggests that the Fed will raise interest rates 4 times, each by 25 basis points.

Technical analysis

U.S. crude oil

Daily chart: Poly Plus channel up, oil prices follow the upper rail; 14 and 20-day moving averages are bullish; stochastic indicators stabilize in overbought areas.

4-hour chart: Poly Plus channel up, oil prices retracement from the upper band; 14 and 20 moving averages are bullish; stochastic indicators are higher in the overbought zone.

1-hour chart: Polyga channel spread, oil prices retracement from the upper band; 14 and 20-hour moving averages bullish; stochastic indicators fall back from the overbought zone.

Roundup: It is expected that intraday oil prices will oscillate in the range of 83.50-86.30, and you can try to sell high and suck low. The upper resistance focuses on the October 25, 2021 high of 85.40, which will be followed by an upward exploration of the October 10, 2014 high of 86.30, followed by the October 8, 2014 low of 86.80 and the October 9, 2014 high of 87.95, as well as the October 7, 2014 low of 88.40 and the October 6, 2014 low of 88.80, while the support below is to keep an eye on the October 25, 2021 high of 85.40, a break below the January 17 high of 84.60, then the January 18 low of 84.05 and the January 17 low of 83.50 , as well as the January 13 high of 82.90 and the November 11, 2021 high of 82.30.

Brent crude oil

1-hour chart: Polyga channel spread, oil price retracement from the upper band; 14 and 20-hour moving averages bullish; stochastic indicator retracement from overbought zone.

Roundup: It is expected that intraday oil prices will oscillate in the range of 87.00-90.00, and you can try to sell high and suck low. Upper resistance focuses on the January 19 high of 89.00, the breakout will be to explore the October 13, 2014 high of 89.30, then the 90.00 psychological mark and the October 10, 2014 high of 90.45, as well as the October 6, 2014 low of 91.20 and the October 9, 2014 high of 91.80, while the below support is to keep an eye on the 88.00 psychological mark, the break below will explore the 87.00 psychological mark, then the January 17 high of 86.65 and the January 18 low of 86.40, and the January 17 low of 85.50 and the January 13 high of 85.05.

Wednesday Follow:

Construction of new housing in the United States began in December

U.S. December building permit

US API Weekly Crude Oil Inventory Report

Monthly report on the IEA Short-term Energy Outlook

This article originated from the financial world