Crude Oil Price Overview – What Does The Technical And Fundamental Picture Tell About This Commodity?

Crude Oil Storage. Image Source: Pixabay.com

Rising crude oil prices remain one of the key concerns for policymakers around the world, and despite attempts from the West to keep the market stable, prices almost doubled in 2021, until a few weeks ago when an easing lower was felt at last. 

The USA, China, Japan and other countries jointly announced plans to release part of their strategic oil reserves, with little impact on crude oil price. However, what put pressure on the commodity has been the emergence of a new COVID-19 variant, which prompted markets to start pricing in lower expectations in terms of economic activity moving forward.
 

Crude drops but finds temporary support

After topping at around $84, crude oil started to weaken, breaking below short-term averages such as the 20 EMA. There was little bullish influence and within 5 consecutive selling weeks, the upside prospects were deteriorating. Online trading in crude is now more active on the sell side, as speculators are shorting the commodity. 

Buyers are benefiting from signs of relief, given the price has recently found support at $64, a key area on the chart, where crude bounced back in the second half of August. If bulls can manage to cap the downside, a bounce towards $76 might be a potential scenario. Renewed selling pressure, on the other hand, can push crude towards the $60 area. 

 

OPEC and Russia agree on oil output

In terms of the fundamentals, OPEC+ recently held one of its regular meetings, during which it agreed to maintain the plan to increase oil output by 400,000 barrels per day since January 2022. There were rumors suggesting that this might be put on hold, as a result of higher economic uncertainty expected during the next several months. 

That has not been the case, though, and even though crude oil has been under pressure prior to the meeting taking place, once news on the decision started to come out, the price took a turn on the upside as buyers gained more confidence. 

 

The path of the pandemic still an important factor

Oil demand is still higher than the supply, which should be a major tailwind moving forward. As OPEC does not want to increase output by a large margin, afraid to put massive pressure on crude prices, how demand manages to evolve can really drive the momentum.

Over the past few weeks, the emergence of Omicron (the new Coronavirus strain) and the uncertainty that came with it, have been major drags on the oil price. For the time being, there are already signs of stabilization. 

Markets may be more confident in a few weeks when more data on the new strain’s transmissibility and vaccine effectiveness is available. Until then, crude is bound to be more choppy, with neither buyers nor sellers willing to take longer-term risks.  Despite a short-term bump, the upward trend remains in place and analysts still expect oil to reach $100 during 2022.