Oil Prices Normalize. What's Next?

Oil is a volatile market because its price is heavily influenced by future economic growth, the landscape of the world’s oil cartels, airline and car travel, investor sentiment (future market speculators), and the rate of distribution and refinement.

The new Omnicron virus has jeopardised financial market recovery because current valuations are based on the hope that we will be able to contain Covid.

The price of oil in the coming year will be heavily influenced by how quickly the economy grows.

Technical Analysis From Trending View:

Long Term – Oil typically follows cycles where economic growth spurs oil demand leading to higher oil prices as well as higher prices on the countless goods and services that rely on oil as an input. Eventually, this demand at higher prices dissipates as consumers reject higher prices.

“We see Oil in 2009, 2016, 2018 and potentially now in 2020 rollover after forecasted economic growth declines and higher oil prices become a burden on consumers. In general, high Oil prices never seem to stay around for long as shown by the general decline since 2008. Oil will sell-off from the peak as demand wanes and the cycle restarts again.”

The sine wave shows how Oil markets move cyclically. As seen by these previous bull runs in oil, they last around 2-3 years. Oil in this time usually appreciates by 100%+ from the lows. When Oil falls it usually falls by more than 40%.

Even if a SHORT term supply shock causes Oil to go to $180, that would reduce consumers purchasing power in their other expenditures.

This deflationary pressure will lead to lower economic growth. Observe the relationship between the US10Y and USOIL. Yields across the board are still very low and are not anticipating long term inflation.