Oil prospects 2022

 

Both Brent (XBRUSD) and WTI (XTIUSD) have enjoyed a stable appreciation for the whole of 2021 with prices moving above pre-pandemic levels, see charts below.

 

 

 

OPEC+

Organization of the Petroleum Exporting Countries Plus is a loosely affiliated group 13 Opec member countries and 10 of world’s major non-Opec oil exporting nations. Collectively the y control >50% of global oil supplies and >90% of proven reserves.

In 2020, when the pandemic had a grip on planet Earth, oil prices tumbled due to almost non existence demand. OPEC+ were asked to cut productions to stabilize prices. As world leaders took decisive actions to contain Covid19 spread and re-align policies to cope with the Great Reset, oil demand came back. Albeit price hit 20 year lows before stabilizing.

This Great Reset is a global phenomenon which affects the 7 billion global population. Since 2021, in line with demand, OPEC+ increase their production too to align with appreciating prices.

Current Key Factors

Iran

The ever-existing issue between Iran and the US – nuclear enrichment program. US, playing the role of global police (self-appointed) insisted that Iran does not expand its nuclear enrichment program. Iran, on the other hand insisted that their nuclear enrichment program is aimed at peaceful utilization – power supply. Such spat has resulted in embargo for Iran’s oil for the past 2 decades. A unique case happened when China bartered for Iranian oil with gold bars, in 2018, to bypass the embargo as it does not the US dollar. Is the embargo still on? Negotiations are still on the way.

Ukraine

Russia has placed 130,000 troops on Ukraine border, while the US, again, tries to be the global police. The former Soviet republic is on the verge of joining NATO, which makes Russia’s president Putin, not a happy man. This spat between Russia and NATO has been going on for years. Russia is against the US as a member of NATO, while US insists on being a member as its border is also on the North Atlantic Ocean. Russia is the major supplier of natural gas to Europe, without Russia, Europe may be frozen throughout the winter months. Escalating gas prices will nudge oil prices in the same direction.

Environmentalists

The global Green movement has created enough scare of deteriorating global condition that coerced the major oil producers to focus on green manufacturing processes. This has resulted in decreasing budget for exploring new resources. Case in point – Aramco’s current reserves can last for the next 10-15 years with no new reserves.

Renewable energy is the next champion, with US50bn investments, solar and wind energy may divert the need of oil. The naysayers are not confident that renewable energy can supply the same volume at the same costs as oil, but team Green are always working on research and development to save the planet without destroying it further.

Plastics

Almost everything in our current daily lives, there are plastics, from the mundane grocery shopping to state-of-the-art gadgets. The plus point is that plastics are recyclable, the negative side is – it needs heat, lots of it to produce. New plastics are the by-products of crude oil and palm oil manufacturing process.

Summary

As we approach the second quarter, the demand for heating oil may be dwindled in the Eurozone, but OPEC+ has no plans of production cuts.

With more countries are coping well on the pandemic, the Great Reset may not be that bad after all. Some countries have stated that Covid19 as an endemic, while some prefer to treat it as a common flu. That is good news for the global trade and economy.

Q2 may see oil prices dipping, technically shown on the charts. Prices are expected to test $60s, then a gradual rebound to Q4, winter months.

The geo-political and geo-social issues are always there on the back burner, just be prepared for surprises.