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Will Oil Maintain Price Gains?


16 November 2021

Over the past 3 months the price of Oil has increased by 30%, but the fact that the asset has managed to maintain a price above $80 is just as significant. Other assets which have seen strong bullish price movement such as Tesla can thereafter witness collapses. For example, Tesla increased by 80% but then declined by over 18% in 1 single week. Oil has not yet showed signs of a price collapsing to that extent and there is a clear explanation for this.

Oil Price Gains

Firstly, it is important to understand the price condition and why the asset has firmly increased over the past 18 months. The price had originally seen a sharp decline in demand due to economic and social restrictions which had triggered OPEC to apply strict regulation on the supply and production of Oil. Keep in mind the price is based on supply and demand.

The lower level of supply and the gradual increase in demand has fuelled the price action. As the price becomes more bullish and the market’s risk appetite increases further buyers have been added. All the above has energized the price movement. This has resulted in not only a price increase of over 75% this year alone but also for the asset to maintain its price gains.

Will OPEC keep the supply low?

The price movement is deeply influenced by the level of supply. China, India, and the US have pressured OPEC to increase the level of supply after many countries have suffered with the higher price of oil and inflation in general, however, this has been ignored. The organisation is gradually increasing the supply but at a low level.

So, with regards to whether the intergovernmental organisation will increase supply, the answer is no! OPEC have confirmed that they will not increase the production levels during the month of November and December. The limit on production set by OPEC is 400,000 Barrels per day. However, we cannot be certain whether supply will increase in 2022, hence the important of continued analysis.

According to many OPEC ministers, the demand has increased, but this has been extremely gradual and there is no certainty the demand will not decline due to the Pandemic. OPEC are playing it safe until there is certainty that all economies and individuals will be restriction free. In early 2020, the price saw a massive shock due to sharp declines in demand, this is the scenario which OPEC are looking to avoid at all costs.

Can Oil reach $100 per Barrel?

There have been many articles and speculation whether the price can reach $100 per barrel. Within regards to whether it is possible, yes, if it is based on the volatility levels of the past few months. However, past performance is not an indication of future performance. The price will be deemed based on the continued supply and demand over the coming months. Looking at the current data the volume profile is illustrated highest at $82.13 based on data of the past trading days.

Latest Developments

Towards the end of the week the price of Oil had slightly retraced to the previous support level. The pressure on the price was applied by the growth of the US Dollar amid the publication of strong economic statistics on consumer inflation in the country. Investors hope that the increase in prices will affect the decision of the US Federal Reserve on tightening the monetary policy.

An additional impact on the quotes of the resource was the fact that OPEC forecasts for world oil demand were reduced. The group announced the expected drop in indicators in the fourth quarter of this year to 330,000 barrels. According to OPEC, the demand and inflation is slowing down as energy prices rise, which is holding back the pace of global economic recovery. If the level of demand does considerably decline while the supply increases, this can cause strain on prices.

Over the past few months, the price has managed to maintain its high price and sentiment amongst market participants. The price movement will be influenced mainly by the demand in the next quarter as well as the group’s decision on how to control supply in order to maintain price gains.

Disclaimer: This article is not investment advice or an investment recommendation and should not be considered as such. The information above is not an invitation to trade and it does not guarantee or predict future performance. The investor is solely responsible for the risk of their decisions. The analysis and commentary presented do not include any consideration of your personal investment objectives, financial circumstances or needs.
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