Momentum building as Russia moves closer to invading Ukraine
Brent crude came within a whisker of $100 today for the first time since September 2014 before profit-taking kicked in. Will it eventually capture this level?
There’s been a number of times in recent months when $100 oil has been thrown around like it’s a case of when rather than if it will hit that massive psychological level.
The shortfall of supply from OPEC+ which continues to fail to hit its targets by ever-widening margins, combined with stronger than expected demand has created a very tight market and with no end in sight in the near term, the price has been naturally rising.
November offered temporary reprieve, initially from the US-led coordinated SPR release as various countries sought to address the imbalance and lower prices, and then from the emergence of omicron which had a far greater impact.
Once the threat of omicron was deemed to not be too great, the price started climbing again and it hasn’t really stopped. The crisis now in Ukraine has just added to the rally, with traders now pricing in additional risk premium in the event of Russian supplies being hit.
This brings us back to the initial question, will it surpass $100? There doesn’t appear to be any lack of momentum, despite the price rallying 50% from the December lows. That was starting to emerge but the escalation at the Ukrainian border has seen that reverse.
In terms of how far it can go if it does go above $100, that depends on what happens in Ukraine, not to mention if a new nuclear deal is signed between the US and Iran that could quickly see 1.3 million barrels per day back in the market.
The next test could come around $105, where it saw plenty of activity almost a decade ago. The key will be the events on the border but in the meantime, momentum indicators could give us an idea of whether the break of $100 will accelerate the rally or not.
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