In crude oil, we are increasingly likely to see a year of two distinctive halves
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We asked Ole Hansen (Head of Commodity Strategy at Saxo), about crude oil, which trades below $80. The question is what could affect the prices in the near future?
Ole Hansen (Saxo): In crude oil, we are increasingly likely to see a year of two distinctive halves. The first half will comprise a market that remains rangebound, with global growth worries offsetting robust and rising demand from China and India. Later in the year, we see an overriding risk of the market beginning to tighten as a recession in Europe and the US fails to materialize thereby supporting a swing from market surplus to deficit. In addition to this, the prolonged war in Ukraine is creating difficulties for Russia to maintain its current level of production, primarily due to difficulties in rerouting its oil products away from Europe.
What's more, there is increased competition from refiners in the Middle East, an emerging refinery hub that will see capacity grow even further during the second half.
Crude oil, rangebound since November, continues to lack the directional input that may see it break out of established ranges, for Brent between $80 and $89, and for WTI between $73 and $83. The strength of China's economic data helped offset continued concerns regarding the economic outlook in the US and Europe—where interest rates look set to rise further in the coming months. These developments, together with a softer dollar and prompt spreads indicating a tightening market, supported a small weekly gain. In Brent, a weekly close above its 21-DMA at $83.75 may signal some additional upside momentum, but overall, we do not see a breakout of the mentioned ranges anytime soon.
