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January 17, 2022
The oil price is currently again around $86, the top rate of 2021. Since 2014, the oil price has not been above $88.
The oil price is picking up for several reasons. First, the dollar is weakening, causing products priced in dollars in the world market to gain higher rates. This compensates for the fall in the exchange rate.
Secondly, it turns out that the Omikron wave is less worse than expected. Markets feared in December that this COVID-19 variant would lead to new global lockdowns, which would naturally put significant pressure on oil demand. The IEA confirmed this week that Omikron's impact was less than expected.
Third, there are also hitches on the supply side of the market. OPEC+ is failing to meet its production targets. The oversupply that the market was counting on does not appear to materialize. There is a lack of free production capacity, especially among African OPEC members. In December, OPEC produced only an additional 70,000 barrels per day, far below the 253,000 barrels per day agreed in the OPEC deal.
Most analysts are therefore bullish for the oil price, partly because little has been invested in additional production capacity.
Oil broke out of the declining red channel and the was technically strong. Now we are trading around the previous top. So we have to watch out for a break to the upside. Remember that this zone was also resistance in 2018. The oil price hasn't been above $88 since 2014.
The technical picture, of course, remains strong. The MACD is above the zero line and the moving averages are moving upwards. The trend is up and everything is in place for an upward breakout. In that case, we're looking at the next resistance levels around $90, $98, and $105.
If a break to the upside does not immediately succeed, there are various safety nets at the bottom that can offer support, after which a new breakout attempt can be made.
We see support around USD 83, USD 81 and the 21 EMA. A possible close below the 21 EMA, would be the first sign of a weakening short term uptrend, making way for a correction a little deeper. In that case, the first targets would be $79, $77 and the 200 MA.
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