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Predicting oil prices is a difficult job at the best of times. Still, it is increasingly difficult as COVID-19 and its variants continue to suspend consumers' plans and disrupt the balance between oil demand and supply. In addition, governments are also working to dismantle the current global energy system and shift to clean energy. All this puts oil prices and energy companies under the fog of uncertainty.

We expect crude oil prices to decline in the coming months, as it appears that supply will outpace demand, and we will find a surplus that turns things upside down. However, this does not mean that oil will not continue the rally that began late last year in 2022.

The potential failure to revive the Iran nuclear deal, the expected return of higher oil demand during the summer season, and the inability of OPEC+ to commit to pumping the agreed on amounts of supplies due to slowing production may push oil prices up.

Prices will begin to rebalance in the first quarter of 2022. According to Energy Information Agency (EIA), the average price of Brent crude will average $70 a barrel during 2022, according to Energy Information Agency (EIA).

Oil price, supply, and demand forecasts

The International Energy Agency (IEA) has forecasted that the global oil supply will exceed demand this year.

Global oil supply is expected to increase by 6.4 million barrels per day in 2022, compared to 1.5 million barrels per day in 2021. According to IEA, global demand will expand by 3.3 million barrels per day in 2022, compared to 5.4 million barrels per day in 2021.

According to the agency's report, the first quarter of 2022 could see a surplus of 1.7 million barrels per day and grow to 2 million barrels per day in the second quarter of 2022.

This surplus may push oil prices to calm down a bit and return to levels of $70 a barrel during this period.

Will oil return to $60 a barrel?

Oil prices may be at risk of dropping to $60 during the coming months due to the slowing demand associated with Omicron, and its effects on economies, production, aviation, and travel. This will happen if:

1. OPEC+ meets its collective production obligations.
2. The United States takes back its role as an influential producer, and the US shale oil comes back strongly to the field.
3. A breakthrough occurs in the Iranian nuclear deal with Western forces, and Iranian oil returns to the market in 2022.

The oil price may collapse to $60 a barrel. However, it will be an excellent opportunity to buy because the long-term trend will be bullish.

Is it possible for oil to jump to $100 a barrel in 2022?

As global economies reopen from the pandemic, oil demand may exceed global supply. However, forecasts of an oversupply in the first quarter of 2022 will disappear for good, as OPEC and its non-OPEC allies led by Russia can still not deliver the planned 400,000 BPD increase each month.

Excess supply will turn into tight supply, as demand for oil fuel increases as economies recover, and the driving season begins during the summer. This may push prices to $85-$90 a barrel during 2022. In addition, OPEC+ is expected to maintain a tight grip on production, which is an excellent recipe for pushing prices higher.

The absence of Iranian oil in the market, as we wait for the possible failure of the Iran nuclear deal talks, may open the door for oil to break $100 a barrel, especially if inflation and rising production costs reach the oil services sector.

In the end, to sum it up, we expect oil to continue its rally, but it will calm down a bit, and prices will range between $73-$85 during the year. According to the circumstances, oil should witness some volatility between ups and downs.

As mentioned earlier, there hasn’t been any relief for technology stocks or cryptocurrencies at the start of the new week. But at the time of writing, Bitcoin was sharply of its earlier low after dipping below the $40K handle.

It is important to note that Bitcoin is testing a major support area here and what happens next will be key insofar as direction for the next few days are concerned.

As well as a psychologically-important level, the area around $40K marks the convergence of previous support and this bullish trend line:

Source: ThinkMarkets and TradingView.com

It is possible that after a major dip like, we could see dip buyers return here, supporting prices. However, if support breaks down decisively then we will have to wait a little longer before prices potentially bottom out.

So, keep a very close eye on Bitcoin here for bottoming signs. What the bulls will want to see here is daily hammer or bullish engulfing, or the like, here.

Ideally, this should happen as soon as possible – within the next few days. However, if price doesn’t start rising soon in the way we have highlighted the possibility, then this would likely precede further short-term weakness.

Key Highlights

• GBP/USD extended increase above the 1.3550 resistance zone.
• A major bullish trend line is forming with support near 1.3525 on the 4-hours chart.
• EUR/USD failed to continue above 1.1380 and corrected lower.
• Crude oil price failed to clear the $80.00 resistance zone.

GBP/USD Technical Analysis

This past week, the British Pound started a major increase above 1.3400 against the US Dollar. GBP/USD even broke the 1.3500 zone to move into a bullish zone.

Looking at the 4-hours chart, the pair settled well above the 1.3500 level, the 100 simple moving average (red, 4-hours) and the 200 simple moving average (green, 4-hours).

The pair even spiked above the 1.3600 level and traded to a new multi-week high near 1.3603. Recently, there was a minor downside correction below 1.3560. On the downside, there is a decent support forming near 1.3525.

There is also a major bullish trend line forming with support near 1.3525 on the same chart. The main support is forming near the 1.3400 level and the 100 simple moving average (red, 4-hours).

The 50% Fib retracement level of the upward move from the 1.3173 swing low to 1.3603 high is also near the 1.3388 level. If there is a downside break below 1.3388, the pair could dive towards the 1.3300 level.

On the upside, the pair is facing resistance near 1.3600 level. The next major resistance is near the 1.3620 level. A close above 1.3620 could open the doors for more gains.

Looking at EUR/USD, the pair once again failed to clear the 1.1380 zone and started a fresh decline in the near term.

Economic Releases

• Federal Reserve Chair Jerome Powell testifies before Congress.
• European Central Bank's President Christine Lagarde Speech.

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NZD/JPY and AUD/JPY are breaking down, together with US stocks. At the time of writing, DOW is down -1.5%, S&P 500 down -1.78% and NASDAQ even -2.5%.

NZD/JPY's strong break of 77.96 resistance turned support should confirm that corrective pattern from 75.95 has completed with three waves up to 79.22. Deeper fall should now be seen through 75.95, to resume the whole decline from 82.49 to 61.8% projection of 82.49 to 75.95 from 79.22 at 75.17 next. On the upside, above 78.51 minor resistance will delay the bearish case.

AUD/JPY also follow and breaches 82.42 support turned resistance. Further downside acceleration will confirm the corrective rebound from 78.77 has completed with three waves up to 84.27. In this case, deeper fall would likely be seen through 78.77, to resume the pattern from 86.24 to 100% projection of 86.24 to 78.77 from 84.27 at 76.80. Meanwhile, above 83.34 minor resistance will mix up the outlook.

At mid-day on Monday, the price for gold broke the resistance of the 1,800.00 mark and shortly traded above this level. However, the surge was stopped and reversed by the 100-hour simple moving average at 1,802.65.

If the price for gold continues to decline, it could look for support in the 1,790.00 mark. Further below, the 1,785.00 level and the zone above it, might stop depreciation of the price.

Meanwhile, a surge of the pair would most likely find resistance at the 1,800.00 level and the 100 and 200-hour simple moving averages near 1,802.65 and 1,806.85.

Markets

It’s testament to current market sentiment that Friday’s comments by the ranking number two in Frankfurt, ECB chief economist Lane, barely caught attention whereas weekend comments by ECB governing council member Schnabel are today’s talk of town. The notoriously dovish Lane stuck to the ECB’s December inflation forecasts and view of fading inflation over the policy horizon after transitory factors disappear. Schnabel addressed the risk that higher energy prices could nevertheless warrant a policy reaction. Tackling climate change could come at a more permanent energy cost, she argues, and filter into higher inflation expectations from economic agents and even in a wage/price spiral. Climate measures like carbon taxes or compensation measures add to upside inflation risks. Using elevated energy prices as a reason to accelerate policy normalization rather than sticking to an accommodative policy would mark a complete ECB U-turn. We haven’t arrived at that point yet, but closely monitor the issue. Markets are also thinking it that same direction. Whereas the ECB stressed at its December policy meeting that net asset purchases will be conducted at least until the end of the year and continue to have an open-ended character, markets started adding rate hike bets for end 2022/early 2023 in spite of forward guidance stating a lengthy pause between ending net asset purchases and the rate lift-off. Since the eve of the December 15 ECB meeting, the December 2022 3 month Euribor contract trades at -0.31%, up from -0.365. The yield on the December 2023 contract increased from -0.07% to +0.115%, suggesting a positive ECB deposit rate by end 2023 compared to -0.50% currently. The European swap rate curve bear steepened over that same period with yields rising by 7 bps (2-yr) to 29 bps (30-yr). Real yields move away from rock-bottom levels. Technically, the EU 10y swap rate moved beyond the previous 0.33% recovery high, to currently test 0.4% resistance. That’s 50% retracement on the decline during 2018-2019. A break higher suggests further upward potential towards the 0.6% area.

Today’s intraday market dynamics didn’t really differ from the start of the year. Core bonds remain near/at sell-off lows. US yields add 2.3 bps (2-yr) to 4.5 bps (7-yr) with the belly of the curve underperforming the wings. The US 10-yr yield trades above the previous recovery top (1.8% vs 1.77%) going into this week’s CPÏ print (Wednesday; 7% Y/Y expected) and supply operation. Especially 10y and 30y Note/Bond sales on Wednesday/Thursday will be closely monitored. German yields rise 0.5 bps (2-yr) to 2 bps (30-yr) today in a bear steepening move. The German 10-yr yield has the psychologic 0% mark within reach. 10-yr yield spread changes vs Germany are broadly unchanged with Italy (--3 bps) outperforming in an unwinding move after last week’s syndicated supply. The Kingdom of Spain joins the frontloading efforts by announcing a new 10y benchmark. The deal will normally happen tomorrow. Rising core yields, and especially their real rate component, pull European stock indices up to 1% lower. EUR/USD remains within the established trading range, with the dollar today being the intraday beneficiary. The pair changes hands at 1.1293. EUR/GBP tested the 0.8335 sell-off low, but a break didn’t occur for now.
 
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Norwegian inflation sprinted to 5.3% in December, compared to the expected status quo at 5.1% the month before. It’s the highest reading since 2008. Soaring electricity prices explained much of the move. However, the underlying gauge also rose from 1.3% y/y to 1.8% (1.4% expected). The data support the Norges Bank’s case to further normalize monetary policy since it started raising rates in September last year. Back in December and after hiking rates for a second time (to 0.5%), the central bank hinted it would increase policy rates for a third time in March this year. The Norwegian krone weakens slightly vs the euro today though the move is mainly sentiment-driven. EUR/NOK trades north of 10(.05).

The EUR/USD broke the triangle pattern in a sharp move upwards, as it should have happened in theory of the triangle. The surge ended at the 1.1365 level. From that level the currency exchange rate started a decline. By the middle of Monday's European trading hours, the rate had returned to the 1.1300 mark.

A further decline of the Euro against the US Dollar would need to pass the support of the weekly S1 simple pivot point at 1.1297. Afterwards, the pair could reach for the January low level zone at 1.1272/1.1277. Further below, the December 21 and 22 low levels might act as support at 1.1260/1.1265.

On the other hand, a recovery of the pair might find resistance in the combination of the 50, 100 and 200-hour simple moving averages near 1.1310/1.1320. Higher above, note the weekly simple pivot point at 1.1339.

A recovery of the USD/JPY pair from the 115.20 level on Monday revealed the lower border of a channel-down pattern. The pattern has been guiding the rate since January 4. During the second half of Monday's trading, the rate was located between the 115.20 mark and the zone that surrounds the 115.50 level.

If the currency exchange rate declines, the 115.20 mark might act as support. Further below, the 115.00 mark is surrounded by a support zone, which kept the pair up during the end of 2021 trading.

However, a recovery of the US Dollar against the Japanese Yen would have to pass the 115.50 level's resistance. The 115.50 mark acted as resistance at the end of November. In addition, note the 200-hour simple moving average located next to 115.50. Higher above, note the weekly simple pivot point at 115.64.

Ethereum extends recent down trend today and hit as low as 2927.20, just ahead of 61.8% retracement of 1715.62 to 4863.75 at 2918.20. Further decline is expected as long as 3245.45 resistance holds. Decline from 4863.75 is seen as in the same degree as the rise from 1715.62 to 4865.75. Deeper decline would be seen to or even further to 100% projection of 4863.75 to 3439.00 from 4126.20 at 2701.45, which is close to 2647.30 support, before forming a bottom.

Similarly, Bitcoin is also extending recent fall and hit as low as 39636. Deeper fall is expected as long as 43577 resistance holds. Current fall from 68986 would target 61.8% projection of 68986 to 41908 from 52101 at 35366 before BTC/USD forms a bottom.