Huge oil price rally – could it reach $100 a barrel?
The start of 2022 hasn’t been great for the stock market and has been particularly devastating for cryptocurrency traders.
Yet, one area of brightness amid the doom and gloom is oil, which has reached its highest levels since 2014.
Today, we examine the oil price, why it’s experiencing a rally, and share opportunities for all traders.
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Oil price rally
The global energy sector continues to defy the broad market selloff in 2022, with seven of the top eight gainers on the S&P 500 being oil and gas stocks on January 27. This is due in part to growing geopolitical tensions between Ukraine and Russia.
WTI crude for closed at $85.60/bbl (+2.8%), while March Brent crude ended at $88.20/bbl (+2.2%) on January 26. By January 27, WTI reached $88.10 while Brent breached $90/bbl.
The rally is astonishing considering prices at the start of the year; WTI started 2022 at $76.8 and Brent was $78.98 on January 3.
What’s behind the rally?
The oil-price rally is being fueled by two primary factors; widespread concern about supply and increased demand for travel.
The Omicron strain of COVID19, which started spreading in late November 2021, has been prolific. South Africa saw a sharp rise in cases yet by January 2022 these are declining as sharply as they began. The country, like many, has removed many of the restrictions regarding economic operations and travel. This has given rise to optimistic feelings about the global tourism sector bouncing back, driving oil demand.
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Another concern is the ever-increasing possibility of war breaking out in the Ukraine and Russia. Suppliers and oil-producing countries are extremely sensitive to factors that could be perceived as a threat to a supply. A conflict in Eastern Europe could be highly disruptive for the entire energy sector.
Could prices hit $100 a barrel?
The Organization of the Petroleum Exporting Countries (OPEC+) group is to decide later in February whether it should continue dropping oil production cuts. OPEC+ could unwind oil production cuts by a further 400,000 barrels per day (bpd) in March 2022, as global demand climbs.
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OPEC+ however has been unable to deliver on the cuts since August 2021, missing its collective target, making market balances tighter than expected.
Analysts believe OPEC+ could struggle to increase supply and prices could spike towards $100 a barrel later in 2022.
Oil price recovery
It’s easy to forget that oil traders have been experienced high volatility at the hands of the pandemic. WTI oil settled at $66.42 per barrel in July, its performance since September 2020. Even a major drop in 2021, is in stark contrast from the horrifying crash below $19 per barrel reported in April 2020.
The road to global oil-price recovery has been a long one, filled with volatility along the way. As long as oil supply can be maintained, demand for travel increase and the pandemic contained, oil traders could be in for a boom market in 2022.
How to take advantage of oil volatility
The most accessible method for individual investors interested in oil trading is through Contracts for Difference (CFDs). A CFD contract mirrors the live price of oil on the market and can be bought or sold online through a trading platform.
Trading oil with CFDs provides investors with access to opportunities without commissions and hidden fees and enables them to generate returns even when prices are falling.
Buying oil CFDs makes sense when prices are rising since you can close your position any time to profit from the difference. However, when prices are trending downwards, you can also choose to sell the contract and enjoy the same returns.
Trading beginners are highly encouraged to get in touch with their account manager to discuss how they can take advantage of price fluctuations in the oil market, and which trading strategy is better aligned with their profit targets and risk tolerance.
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