Hunnit Racks Bustin’ Out The Barrel?

Oil has been going absolutely brazy the week, with crude oil reaching nearly $93/barrel during Thursday’s trading day. Crude is making a substantial recovery from the December of last year, rising on increased economic optimism amidst the scapegoat at the time, which happened to be “Omicron.”

Oil was strong throughout the first half of 2021, losing some luster as Delta variant came into play, then finally regaining some traction into late October, and now finally going even more nuclear from the beginning of December.

While unemployment continuies to decline, personal consumption expenditures (PCE) declined in the month of December, suggesting that demand may not hold strong over the next couple of months. According to the Wall Street Journal, OPEC is agreeing to a “…small, planned increase in Oil supply…” The producers will raise their production output to 400,000 barrels a day in the month of March. This adds additional deflationary pressure on oil prices, which have shown no signs of slowing down since reaching the December low at ~$62/barrel.

Wall Skreet analysts find it likely that Oil will face pressure from reaching $100/barrel this year, unless the Russia & Ukraine situation escalates and requires further intervention from outside forces. Data from IHS Markit’s U.S. Manufacturing PMI fell on 55.5 (previously revised from 55) in January 2022. China’s Caixin Manufacturing also fell to a low of 49.1 in January 2022. For reference, a value above 50 suggests expansion, whereas a value below 50 suggests contraction.

It doesn’t look like oil has the legs based on data so far, but it isn’t out of the realm of possibilities that we’ll see oil reach $100/barrel, and continue to trend higher. Ultimately, it looks like the biggest thing to watch will be Russia/Ukraine tensions.