Black gold managed to end its fourth bullish week on Friday, as prices continued to rise in all benchmarks. The rally was pushing prices near multi-year highs as concerns about the Omicron strain on global demand eased. At the same time, the world's largest oil producers were still sticking to their planned increase in oil production from February.
Last week, the International Energy Agency pointed to a further increase in demand in the last month of 2021 because the Omicron virus was not as disruptive to markets as expected.
Prices are still rising despite the OPEC+ agreement on Jan. 4 to increase production by 400,000 barrels per day from February. Investors have become more optimistic about higher demand, which can be partly due to strong expectations for economic recovery in the new year. Seemingly rising production at this slow pace may not meet the expectations for increasing demand.
Important events for oil in the week ahead
After it became evident that China's demand for oil in 2021 has reached its lowest level in almost two decades, investors were eagerly awaiting the report on China's GDP growth for the fourth quarter of 2021, which will be released early Monday morning. The world's second-largest energy consumer is expected to grow by 3.6% in the last quarter, down from 4.9% in the third quarter. Following a spike of 18% in the previous winter, this downward trend indicates a slowdown in economic recovery.
Investors will also be looking forward to OPEC's monthly report, which will be released on Tuesday, as it could provide insight into recent changes in supply and demand.
Falling USD warms up commodities prices
However, financial factors also play an imperative role in explaining the oil market in addition to economic factors. With investors looking for riskier assets, Treasury bond prices fell sharply, followed by a decline in the dollar index for the fourth consecutive week. This pushed the major currency down from the top of 97 points in late November to 94.60 points this week.
Brent technical outlook
From a technical view, Brent oil has been on an upward trend on the weekly chart since late November 2020. After a successful rebound from the 50-week moving average in November 2021, bullish sentiment gathered momentum to push the market back to the $85.78 level around three-year highs.
An upward trend can continue only if this price ceiling is broken. Should buyers be able to break the price above this critical resistance level, then the following price station is estimated to be $ 91.25.
However, it should be noted that momentum oscillators measuring the trend's strength indicate a decrease in the dominance of buying emotions over time by posting a divergence between the oscillator and the price, which is a sign that the uptrend is waning. Accordingly, reducing the trend slope or a downside correction would be expected.