Oil Market Update

[dan_s]

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Crude Oil: Year-End With Continued Demand
Sunshine Profits
by Sébastien Bischeri Dec 30, 2021 12:39PM ET

Omicron did a bit of a mess at the end of 2021, with oil too. Will crude oil break new price records in 2022?

Market Updates

Yesterday, crude oil prices ended modestly higher after a volatile session with amplitudes increased by closing trades, as U.S. crude inventories fell by 3.6 million barrels – more than expected – which is a positive sign for demand.

Commercial crude oil reserves in the United States fell more than expected last week, recording the third consecutive significant decline on the back of strong demand, according to figures released yesterday by the U.S. Energy Information Agency (EIA).

On the other hand, the overall volatility is mainly due to the possible impact of the Omicron variant on demand; projects, commutations, as well as trips are cancelled, and more severe restrictions are put in place in Europe and China.

The oil market continues to be tight due to the increased demand for heating oil to replace natural gas, which has become very expensive, especially in Europe; the Dutch TTF (Title Transfer Facility) benchmark dropped almost 8% to €89 there. < Still over $32/MMBtu, keeping demand for shipments of LNG from the US very high.

As you may know, one-third of European gas supplies come from Russia. This explains why the energy market is also keeping an eye on the Russo-Western crisis around Ukraine. Russian gas exports could be affected if tensions rise, as Russian President Vladimir Putin is due to speak on the phone with his American counterpart Joe Biden later today. I bet they won’t talk about Russian caviar (which might also be considered Russia’s original black gold).
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MY TAKE: It will be interesting to see what IEA says in their January "Oil Market Update" about oil demand. In IEA's December report (published December 13) the agency based in Paris estimated a slight (100,000 bopd) decline in their oil demand forecast for 2022 because of the Omicron Variant's impact on travel restrictions. 100,000 bpd is a "rounding error". I have followed IEA reports for decades. They have a long history of under-estimating oil demand. I also want to see their take on OPEC+'s difficulties in increasing oil supplies. OPEC+ production has been below their quotas for the last three months.

[dan_s]

Market Watch:
"U.S. oil futures end higher Thursday, with crude turning positive intraday as fading omicron concerns and signs of strong uptake of energy-related assets helped to support year-end buying. West Texas Intermediate crude for February delivery CLG22, -1.31% CL00, -1.31% traded 43 cents, or 0.6%, higher to end at $76.99 a barrel on the New York Mercantile Exchange, after the U.S. benchmark rose 0.8% on Wednesday. The current streak of gains is the longest since an eight-session rally ended Feb. 10, FactSet data show."
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MY TAKE: The front month WTI futures contract averaged approximately $77/bbl in Q4, which compares to the average of $70.54/bbl in Q3. My Q4 2021 forecasts are based on WTI averaging $75/bbl and averaging $80/bbl in 2022. Assuming the "Pandemic of FEAR" fades in the spring, I expect WTI prices to spike in Q2 2022 when it becomes clear that OPEC+ will soon be out of spare capacity.