OIL PRICE Retracement on bullish momentum of January

Beginning of January, oil price has started to rally from its month low of $72.40 and high of $82.35 a barrel over the past two weeks on China’s swift pivot away from Covid restrictions, which may spur daily consumption to hit a record in 2023.

Bullish momentum seemed to slow down as oil erased gains from the past two sessions as earnings from multiple US companies disappointed, potentially signaling a gloomy short-term outlook for energy traders.

China will likely consume more energy as its economy recovers, putting upward pressure on prices of oil and other commodities. At the same time, however, its reopening could ease supply-chain bottlenecks and enable factories to boost production, resolving some problems that contributed to higher inflation in 2022.

According to the International Energy Agency, China’s growing appetite for oil will push overall global demand to a record level of 101.7 million barrels each day, well above pre-Covid levels. According to economists from Société Générale, If China’s reopening momentum holds, that could propel Brent crude oil prices to an average $100 a barrel by year-end from around $82 currently.

Investors will continue to monitor other earnings for any clues that could identify the economic outlook for China. In the coming weeks, many will look at results from multinationals like Tesla Inc., Chevron Corporation, and Exxon Mobil Corporation to get an idea of where they see demand in the world’s second-largest crude importer.

Meanwhile, an OPEC+ panel is likely to endorse the producer group’s current oil output policy when it meets next week, five OPEC+ sources said on Tuesday, as hopes of higher Chinese demand driving an oil price rally are balanced by worries over inflation and a global economic slowdown. Bank JP Morgan raised its forecast for Chinese crude demand but maintained its projection for a 2023 price average of $90 a barrel for Brent crude.

Technical analysis indicated that oil price has been in a bullish trend since early January and has traded in a range of last week from $78.15 to $ 82.35. By the time of writing analysis oil price has traded at $80 a barrel. Investors may continue to short sell with a retracement of 50% of month low of $72.40 to high of $82.35 which is $77.37 a barrel.  Trade recommendation for this week, Sell at $81 putting stop-loss at $82.5 and take profit at $77.50 a barrel.

Analyst: Mr. Nihm Kosol, Independent Analyst

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