Oil reached a three-year high record this Thursday, reaching $86 per barrel driven by tight supplies and the global energy crisis. However, they plunged later as some investors took profits on signs that the rally was overstretched.
In addition, to further boost prices, the US Energy Information Administration reported on Wednesday that crude and fuel inventories tightened. Specifically, the crude inventories at the Cushing storage hub fell to a three-year low.
Moreover, Brent crude rose to its highest point since October 2018 to $86,10 per barrel. However, it was down $1,04, 1,2% at $84,78 later today. While the US West Texas Intermediate fell 47 cents, 0,6% to $82,95 per barrel, according to Reuters.
The main reason for the decrease was that traders who had set $86 as their selling threshold took the opportunity to pocket some profits, said Louise Dickson of Rystad Energy, quoted by Reuters. “Oil prices took a dive as a result.”
As we have reported previously, oil prices have had a rally for weeks. Indeed, Brent crude has risen around 60% this year; supported by the slowly increased production from the Organization of Petroleum Exporting Countries; the uplift in demand after the pandemic, and the natural gas and coal rebound that prompted a switch to oil for power generation.
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Oil might reach $90 a barrel by 2022
However, this week oil received some pressure from falling coal prices. Particularly in China, coal prices fell 11% this Thursday, extending losses from the week since Beijing signaled it might intervene to cool the market.
Furthermore, Jeffrey Halley, an analyst at brokerage OANDA, said about the matter. “With coal and gas prices easing and with the relative strength index technical indicators still in overbought territory, the odds of a sharp but material fall in oil prices are rising.”
Despite this scenario, analysts consider that the rally would continue as OPEC+ is likely to stick with its gradual increase in production policy. At the same time, demand might reach pre-pandemic levels in the short term.
Finally, Rystad considered that the bullish scenario would continue until 2022. Giovanni Staunovo of Swiss bank UBS said in a report he expected Brent to trade at $90 in December and March.
