Crude oil traders get a reprieve as prices stabilise

Oil looks like it might be holding firm following a couple of weeks of negative price action.

Crude oil trading

Key benchmarks retake ground

Is the wobble over?

Crude oil traders may feel a little more positive this morning as WTI and Brent appear to be holding their nerve following last week’s price plunge.

The two benchmarks performed well over the weekend and appear to be trading mostly sideways on Monday. Prices look like they have stabilised.

At the time of writing, WTI futures were running into a bit of resistance at $71.70, trading down 0.46% on the day.

Brent was in the green but only just. Prices were up a negligible 0.04% with the North Sea benchmark essentially keeping steady at $75.23.

It’s been an interesting two weeks for crude oil. The emergence of the Omicron COVID-19 variant sent traders to panic stations. At one point, on December 2^nd, Brent had fallen as low as $65.75, but is now $10 clear of December’s low.

Market confidence appeared to be building across last week as oil strengthened.

Traders appear to have priced in the biggest threats to oil this month. Recent research from South Africa, where Omicron first arose, suggests this new strain, though infectious, is not deadlier than normal COVID.

We may be able to live our lives as normal – or at least pandemic normal – going forward. Scaremongering from the UK government, which has suggested 75,000 extra COVID deaths will occur in January, could be all conjecture.

Let’s be clear: the pandemic is far from over. With studies showing that an extra boost can be up to 70% effective against Omicron, it just might not be as bad as expected.

But there are still some pressures weighing on oil. US inflation continues to sizzle. Last week’s hot CPI print, coming in at 6.8% in November, caused a slump in the dollar. A weak greenback is bad for oil as we all know.

China has also implemented new air travel restrictions. As we’ve seen across the pandemic, as soon as limits are put on air travel, oil starts to wobble.

Current price action does look like traders are pricing in these threats.

Of course, anything can change. We may yet see more restrictions on movement across Europe, for example. Austria and the Czech Republic have been in full lockdown. The Netherlands and Italy have also introduced measures.

We’re on a bit of a knife edge here – but oil markets look at least more confident than at any point over the past fortnight.

Peak oil predictions shift

A recent survey of oil investors shows a belief that peak oil may occur later than first anticipated.

A November Bloomberg Intelligence poll of oil insiders shows less than 2% now think peak oil will be reached by 2025.

Attitudes have certainly changed over the past two and a half years. The previous survey, taken during that time frame, implied that peak oil would be reached b February 2021. Obviously, this hasn’t happened.

So, what do oil professionals think is the most likely peak oil date? There’s a bit of a split. One third of participants believe we won’t reach peak oil demand until somewhere between 2030-2035. Another third puts it between 2025-2030.

OPEC+ believes it won’t occur until somewhere in the mid-2030s. What’s more, the cartel thinks that even after this date, oil will still control a large chunk of the world’s energy requirements. By 2045, 28% of global energy share will be covered by oil, OPEC Secretary General Mohammed Barkindo said at this month’s OPEC-JMMC meeting.

The biggest driver of change will probably be electric vehicles.

Some countries are mandating hard that drivers need to make the switch to EVs as soon as possible. Sales of internal combustion-powered vehicles will be banned in the UK by 2030, for example. As many as a billion petrol-powered vehicles will need replacing around the world as oil stocks dwindle – but there needs to be wholesale infrastructure and legislative change to really push the switch.

Bloomberg’s Electric Vehicle Outlook 2021 states that battery and hybrid-powered vehicles are already removing one million barrels of oil per day from demand requirements worldwide. At this pace, Bloomberg says, ICE-generated oil demand will peak in 2027 before falling away as more drivers go green.

So, enjoy your V8 motor while it lasts. There might not be fuel for it before too long.

A quick look at oil inventories

The next EIA oil inventories update comes this Wednesday with data for the week ended December 10^th.

Ahead of that, here is the current state of play for American crude stockpiles.

The EIA says: “US commercial crude oil inventories (excluding those in the Strategic Petroleum Reserve) decreased by 0.2 million barrels from the previous week.

At 432.9 million barrels, U.S. crude oil inventories are about 7% below the five year average for this time of year. Total motor gasoline inventories increased by 3.9 million barrels last week and are about 5% below the five year average for this time of year.”