Will Oil Reach $100 A Barrel For The First Time Since 2014?

Author: Zaheer Anwari | February 09, 2022 12:35pm

Since my previous update, which you can read here, the price of U.S. oil fell by 26%, from $82 to $62 in the final quarter of 2021. At the start of December, the bulls came in strong, taking the price from $62 to $90 at writing, a climb of 44%. 

These are new highs for the price per barrel dating back to 2014. 

Why these recent swings? 

People will often form their theories to try and find meaning. This unfortunately usually takes precedence over what matters, which is establishing a direction and bias to the market, either bullish or bearish, and then making the most of the long-term trend that may unfold. 

Of course, the decline of last year was put down to the omicron variant and the business-killing restrictions it may bring. When this strain of the coronavirus apparently proved not to have as significant an impact on our daily lives, including business and travel, the price halted its decline. 

It has since become a case of supply and demand that has caused this recent 44% increase in the price. Look into OPEC+ productions, and there is a shortfall of production despite demand remaining relatively steady through the latest chapter of this pandemic. 

Throw in other geopolitical tensions such as the situation regarding the Iraq-to-Turkey pipeline, drone attacks in the UAE, election challenges in Libya and the Ukraine crisis, and you have a melting pot of reasons for what is affecting oil prices. 

A more straightforward way of analyzing oil. 

Ignore the news and the noise and instead focus on the direction of oil since the closing price of April 2021 at $20. Despite everything, price has increased by 360% to the current price of $90, and if we are to follow the mantra of sound investing, then long/buy opportunities are what we should be looking for to add into the portfolio. 

Below is the monthly timeframe.

By allowing price to dictate how far it will go, we remove the need for opinions.

The question is, how far will the price per barrel go in 2022? The answer, of course, is that we have no idea. It could reach new all-time highs or reverse back into the consolidation the price has been trading in since the low of 2015.

As investors, we must:

• Establish a bullish edge based on technical and/or fundamental analysis going in the direction of the established long-term trend.
• Determine a logical entry point that removes emotion.
• Calculate a well-placed stoploss that gives the price time and space to come good and not get stopped out on minor pullbacks or corrections in the market. 
• Risk no more than 1% to 2% on the initial position so there is no attachment to the position.

If the position fails, the loss is minor and easily recoverable. If the position grows in our favor, we can buy more oil, known as compounding, to accelerate the profit phase.

My stance on oil.

I am keeping a keen eye on this and will add oil back into the portfolio once the price structure displays the edge I require.

If the bulls continue to push the price up, the $100 level will prove to be a struggling point. If this is cleared, the $115 level will be the next challenge. If this level is cleared, we could see price push to the all-time high dating back to 2008. I have marked these levels on the monthly timeframe above.

There is a lot of work for the price to do. You could of course stand aside and look for far simpler opportunities elsewhere. It all depends on your risk profile and the assets already in your portfolio.

From experience, when oil establishes a direction, it can trend very well, so black gold is always a potential for my portfolio.

Posted In: OIL USO