Crude Oil Continues to Rise as Industries Consider Switching Over From Expensive Gas
Key Talking Points:
- Oil demand picks up as industries switch over from expensive gas
- Russia’s offer to supply gas could be months away due to approval delays
Oil prices are edging higher again at the start of this week as the energy crisis is likely to continue as global economies pick up economic activity and demand. A natural gas crunch is seeing spillover effects into oil prices as some industries are looking to replace gas shortages with oil, with experts predicting it could boost oil demand by over 1 million barrels per day during the winter months.
RUSSIA SUPPLY LIKELY MONTHS AWAY
Putin’s helping hand to ease supply shortages with an increase above its contractual obligations of the amount of gas it supplies to Europe saw gas and crude prices come off slightly from their highs last week. But the lack of approval from the European Union and Germany for the use of Nord Stream 2, a pipeline supplying Russian gas to Germany under the Baltic Sea, means the help from Russia could take months, potentially until May, meaning that supply shortages are likely to remain throughout the winter, keeping oil prices supported in the meantime.
Gas storages around Europe are at their lowest in years which means countries are going to be highly dependant on Russia for supply, a less than ideal situation and one that will likely see gas prices elevated for much longer.
US DENIES CLAIMS ABOUT RELEASING SPR
One of the risks for oil prices is the possibility of the US releasing its strategic reserves, despite claims from the Department of Energy that tapping into reserves is off the table for now. The climate crisis is their reasoning behind it saying that it is their main priority now as most leading economies pledged to go green in the next decade, but it wouldn’t be the first time a government was to backtrack in the face of soaring energy prices. Their solution, for now, is to continue talks with OPEC+ to ensure fairer prices as well as attempting to lower gas prices.
The main trend in crude prices is up with the switch from gas to oil being the main driver behind bullish demand. Brent is still hovering below its 2018 high (86.65) and the RSI still has some way to go before overbought conditions get to the level of bearish reversal we’ve seen over the last 9 months meaning higher prices are likely in store. That said, I would expect to see some corrective pullbacks up ahead as the bullish trend consolidates and so the next resistance up ahead could be between $86 and $90 per barrel.
For US crude, the path seems a little clearer on the upside and there is little in the way of strong resistance up ahead before reaching $95. As with brent, I would expect some pullbacks along the way with a few minor resistance areas up ahead (82.88, 84.05, 85.85, and 90.74) which were the weekly highs above the current area as WTI was facing its 60% drop back in 2014.
Brent Crude Weekly chart
WTI Crude Weekly Chart
Traders of all levels and abilities will find something to help them make more informed decisions in the new and improved DailyFX Trading Education Centre
--- Written by Daniela Sabin Hathorn, Market Analyst
Follow Daniela on Twitter @HathornSabin
DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.