Commodities Forecast Crude Oil Forecast Forecasts

Crude Oil Forecast: Oil extends drop

Mark Holden December 14, 2021

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Bloomberg: Oil extended declines as an increase in OPEC’s demand forecast for the next quarter was offset by continuing uncertainty over the omicron virus variant’s impact on demand and strength in the dollar.

Brent crude traded near $74 a barrel after slipping 1% on Monday. The Organization of Petroleum Exporting Countries boosted estimates for oil consumption in the first quarter by 1.1 million barrels a day in its monthly report from the group’s research department but said it still sees a surplus. An index of the dollar is up more than 0.4% this week, reducing the appeal of commodities like oil that are priced in the U.S. currency.

The future’s curve is indicating a worsening outlook for prices. The backwardation in Brent’s prompt time spread is inching toward a bearish contango structure — where near-dated contracts are cheaper than later ones. The spread was 11 cents a barrel in backwardation on Tuesday, compared with $1.04 a month earlier.

Oil has staged a partial recovery this month after tumbling into a bear market at the end of November due to the emergence of the new Covid-19 variant. Economic risks from the omicron strain and central bank efforts to rein in accelerating inflation are likely to see reduced risk appetite from traders, especially with the end of the year approaching.

On the other hand; Volumes are thinning as it’s the year-end and there’s no reason to be risk-taking, and OPEC’s move to upgrade its demand outlook for early next year can be a positive signal for the market, but it can also be seen as a move done to justify the group’s increases in the months to come.

OPEC’s increase in its demand forecast for the first three months of 2022 is equivalent to annual world consumption growth in a typical year before the pandemic and shows the group sees omicron’s impact as likely to be mild and short-lived. However, that estimate was offset by downgrades to consumption in the second and third quarters.

Technically; WTI prices are stuck in a narrow range of 73,50 – 70.50 USD/ Barrel.

We predict a bearish move which can be accelerated by the breakout of 70 USD. Technical targets of the formation are 68 and 66.50.