Bullish Sentiment Buoys Oil Prices As Analysts Focus On Tight Market Conditions

Meanwhile, a shrinking Japanese populace prompts a key refiner to plot a downgrade: File Image/Pixabay

Although crude prices have sunk by almost a third since June on demand concerns stemming from everything from inflation to China's Covid lockdowns, continued declines in the U.S. dollar on Monday were enough to distract traders and cause a rise of over 1 percent for two key benchmarks.

West Texas Intermediate added 1.1 percent to settle at $87.8 per barrel, and Brent rose 1.3 percent to end the session at $94 per barrel.

Ed Moya, senior market analyst at Oanda Corp., remarked, "A lot has turned bullish for oil today: the dollar rally halted on optimism that inflation will continue to cool; Iran nuclear deal talks stalled, which delays the idea that any relief to supplies will be happening anytime soon; food and medical shortages in China raise the prospects that President Xi will soon have to abandon their zero-COVID policy.

"The oil market still remains tight and the latest plunge was overdone."

Indeed, Phil Flynn, senior market analyst at Price Futures Group Inc., observed that  "Everyone's worried about this slowdown in demand, but boy, we better hope for a slowdown in demand because we're running out of oil in the SPR and if China reopens, we're not going to have enough oil to meet that demand."

But it's unclear whether reason will prevail in China, where analysts say demand could contract for the first time in two decades as the Covid restrictions keep people at home during holidays and reduce fuel consumption.

Rebecca Babin, a senior energy trader at CIBC Private Wealth Management, added to an emerging bullish sentiment by stating that harsher Europe sanctions against Russia that begin on Dec. 5 and gas-to-oil switching will also support oil prices: "Looking out for rest of 2022, we see prices moving higher with WTI in the $95-$105 range and Brent $100-$110."

Given that the G7 is moving forward on plans to implement a price cap on Russian oil to limit the country's oil export revenue, the U.S. Treasury warned that the cap could send oil and U.S. gasoline prices even higher this winter.

In other oil related news on Monday, a prime example of thinking in the long term was exhibited by Eneos Holdings Inc., Japan's biggest oil refiner, which revealed it is developing an outline for consolidating production in order to contend with an estimated demand slump of 50 percent by 2040, due to a shrinking population.

Eneos has already announced a plan to close one of its 10 refineries next year.