Crude Oil Price Forecast: Brent to Soar Above $90 Soon

Jan 14, 2022 02:43 PM ET
Crude Oil Price Forecast: Brent to Soar Above $90 Soon

The crude oil price has done well in 2022 as investors predict robust demand and lower supplies for 2022. Brent, the global benchmark, has risen to $85, while the West Texas Intermediate (WTI) has risen to $82. These levels are slightly below their highest in 2021.

Crude oil price performance

The price of crude oil did well in 2021 as investors reacted to the overall rising demand around the world. According to the Energy Information Administration (EIA), oil demand rose to over 96.1 million barrels per day in 2021. That was a big jump compared to the decline that happened in 2020 as many countries implemented lockdowns.

The rising demand also happened as the supplies remained under pressure. In the United States, many shale producers increased production at a slower pace than expected. Indeed, the number of active rigs in the country is still lower than where they were before the Covid-19 pandemic started.

The main challenge for oil prices in 2021 was the fact that the vaccination process was a bit slow in developed countries. As a result, this led to the emergence of new variants like Delta and Omicron. These variants led to some travel restrictions in several countries like China and Australia.

Supply pressure

The crude oil price rose sharply in 2021 as investors predict a supply and demand imbalance. On supplies, analysts believe that growth will be limited. For example, OPEC+ members decided to stick with their policy of gradually increasing supplies in February. They will keep boosting supplies by about 400k barrels per day.

In theory, the slow supply increases by OPEC members would have been a good thing for American shale producers like Continental Resources, Devon, and Pioneer Natural Resources. However, the opposite has happened this year.

Instead of investing in growth, these companies have decided to increase their production only marginally and make more money with price increases. The firms argue that they invested billions before the pandemic and got burned. 

Most importantly, the supply challenge is coming from the ongoing advocacy on climate change. With companies like ExxonMobil and Chevron under pressure from activists, many of them have reduced their investments in exploration. The underinvestment in the industry will lead to a situation where demand rises while supplies remain under pressure.

Demand set to rise

The crude oil price has risen as investors anticipate more demand this year. Organizations like the EIA, OPEC, and the International Energy Agency (IEA) recently released reports that predicted robust demand this year. The average estimate is that demand will soar to over 104 million barrels per day this year.

The optimistic view is mostly because the Omicron variant has turned out to be less challenging than Delta and other variants. As a result, many countries are reopening. For example, France abandoned its limits on UK travelers this week.

Therefore, there is a possibility that more countries will reopen their air spaces this year, which will lead to more oil demand.

Crude oil price forecast

The daily chart shows that the crude oil price has been in a bullish trend in the past few days. It has risen by more than 27% from its lowest level in December last year. Also, it is approaching the highest level in 2021. The price is also above the 25-day and 50-day moving averages, while oscillators like the Relative Strength Index (RSI) have tilted higher. Therefore, there is a likelihood that the prices will soar to over $90 in the near term.

Crude oil CFDs daily price chart

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