Oil prices resilient on energy transitioning and despite softer Chinese demand
Oil prices showing a relative short-term outperformance despite IEA suggestion of waning demand in 2022.
Oil resilient over the near-term
After dipping to their worst levels in the beginning of September 2022 since January this year, oil prices have started a modest rebound from oversold territory. Interestingly enough, oil has shown a relative resilience this week to asset classes such as equities and metals which succumb to fears of tighter monetary policy amidst higher inflation and the prospect of slowing / contracting economic growth.
Oil prices finding some support from power generation transitioning
The commodity is however finding some support from higher energy prices in its fossil fuel peers namely coal and natural gas. These higher energy prices are supporting some of the demand side factors for oil which is seeing an increased need for power/electricity generation, most notably in Europe and the Middle East. Exorbitant cost pertaining to oil and gas find an increased appetite for oil at present.
IEA suggests the level of oil demand to wane
A recent report from the International Energy Agency (IEA), while noting increased demand for the commodity in power generation, expects the growth in demand for oil to slow into the remainder of the year. Amongst the catalysts for waning demand growth are the pandemic disrupted Chinese economy (through ongoing lockdown implementation) and slowdown in Organisation for Economic Co-operation and Development (OECD) countries.
The IEA has in turn lowered its forecast for demand growth in 2022 by 110,000 barrels a day to two million barrels per day, while keeping its growth forecast for the commodity in 2023 at 2.1m barrels per day.
WTI crude vs Brent crude
The above chart shows a WTI (US) crude oil chart and spread comparison indication against Brent crude. The spread indicator trading below the red shaded area on the chart shows that the price of WTI has seen a sharp underperformance (more than two standard deviations) against its Brent crude peer. This is only the second time this has occurred in the last two and a half years.
We maintain our view that over the medium term we could see a normalization of the spread relationship between these two securities with WTI now starting to outperform Brent.
An outperformance could occur in one of three ways:
- The price of WTI rising while the price of Brent falls
- The price of WTI rising faster than the price of Brent rising
- The price of WTI falling slower than the price of Brent falling
This information has been prepared by IG, a trading name of IG Markets Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer and quarterly summary.
React to volatility on commodity markets
Trade commodity futures, as well as 27 commodity markets with no fixed expiries.1
- Wide range of popular and niche metals, energies and softs
- Spreads from 0.3 pts on Spot Gold, 2 pts on Spot Silver and 2.8 pts on Oil
- View continuous charting, backdated for up to five years
1In the case of all DFBs, there is a fixed expiry at some point in the future.
See opportunity on a commodity?
Try a risk-free trade in your demo account, and see whether you’re onto something.
- Log in to your demo
- Try a risk-free trade
- See whether your hunch pays off
See opportunity on a commodity?
Don’t miss your chance. Upgrade to a live account to take advantage.
- Analyse and deal seamlessly on fast, intuitive charts
- Get spreads from just 0.3 points on Spot Gold
- See and react to breaking news in-platform
See opportunity on a commodity?
Don’t miss your chance. Log in to take your position.
Live prices on most popular markets
- Equities
- Indices
- Forex
- Commodities
Prices above are subject to our website terms and agreements. Prices are indicative only. All share prices are delayed by at least 15 minutes.
Prices above are subject to our website terms and agreements. Prices are indicative only. All shares prices are delayed by at least 15 mins.
