Oil Price Forecast: Crude on Track to Fill November Price Gap

Oil Price Talking Points

The price of oil trades to a fresh weekly high ($78.53) despite a smaller-than-expected decline in US inventories, and crude appears to be on track to fill the price gap from November as it clears the December high ($77.44).

Oil Price Forecast: Crude on Track to Fill November Price Gap

The price of oil extends the advance from the monthly low ($74.27) as the Organization of Petroleum Exporting Countries (OPEC) plans to “adjust upward the monthly overall production by 0.4 mb/d for the month of February 2022,” and current market conditions may keep crude prices afloat as the group retains a steady approach in restoring production to pre-pandemic levels.

It seems as though OPEC and its allies are undeterred by the renewed restrictions driven by the Omicron variant as the most recent Monthly Oil Market Report (MOMR) insists that “in 2022, world oil demand growth was also kept unchanged at 4.2 mb/d and total global consumption at 100.6 mb/d,” and it remains to be seen if the group will adjust the production schedule at its next meeting on February 2 amid the mixed data prints coming out of the US.

US crude inventories fell 2.144M in the week ending December 31 versus forecasts for a 3.283M decline, and the growing number of COVID-19 cases may drag on the price of oil as it casts a weakened outlook for future consumption.

Nevertheless, the tepid recovery in US production may prop up oil prices as field output holds steady at 11,800K for the second week, and crude may attempt to fill the price gap from November as it establishes an upward trend after defending the August low ($61.74).

With that said, the price of oil may continue to trade to fresh monthly highs as it clears the December high ($77.44), and crude may exhibit a bullish trend in 2022 as signs of limited supply are met with expectations for robust demand.

Oil Price Daily Chart

Source: Trading View

• Keep in mind, the price of oil cleared the July high ($76.98) after defending the May low ($61.56), with crude trading to a fresh 2021 high ($85.41) in October, which pushed the Relative Strength Index (RSI) above 70 for the first time since July.
• Nevertheless, the price of oil reversed ahead of the October 2014 high ($92.96) as the RSI fell back from overbought territory, but crude appears to have established an upward trend following the failed attempt to test the August low ($61.74).
• In turn, crude appears to be on track to fill the price gap from November as it clears the December high ($77.44), but need a break/close above the $78.50 (61.8% expansion) to $78.80 (50% expansion) area to bring the $81.50 (100% expansion) on the radar.
• Next area of interest comes in around $84.20 (78.6% expansion), with a break above the 2021 high ($85.41) opening up the $88.10 (23.6% expansion) region.

--- Written by David Song, Currency Strategist

Follow me on Twitter at @DavidJSong