December 6, 2022

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Oil up close to 2% near the highs for the week

2 min read

Oil bounces back on the day after a drop yesterday

WTI

It’s been a bit of a push and pull in oil prices over the past few days, after the rally at the start of the week settles down.

The market remains focused on Jackson Hole but the latest shove higher today indicates that buyers are still poised to try and go in search of a further bounce after having tested the May lows in trading last week.

Keep above the 100-day moving average (purple line) and there is good reason to see oil extend gains going into next week. However, the short-term case for oil is that gains could be more limited closer to $70 unless delta variant risks ease.

Some thoughts from earlier in the week that are still arguably holding:

Delta variant concerns are still a risk for oil but if anything, they are likely to prove to be mere hiccups as global virus restrictions should continue to be eased as vaccinations pick up in the months ahead.

China also appears to have quickly put a stop to its latest local outbreak, helping to ease worries about a prolonged hit to consumption activity and oil demand.

As such, the broader outlook for oil going into next year remains relatively unchanged as the market is likely to remain tight and that is supportive of higher prices in general.

Overall sentiment on the pandemic and the delta variant is still likely to keep oil gains limited in the short-term but if the market starts to sense a convincing turn in the battle against the virus, there’s room for oil to rally much further from these levels.

For now, the dollar and Jackson Hole are other key factors to consider but in all likelihood, Powell & co. are unlikely to spoil the risk party this week.

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