Geoffrey Smith 

Investing.com —

Geoffrey Smith 

Investing.com — Oil prices fell in quiet trading on Monday against the background of data from Friday and a U.S holiday, suggesting that market participants have fully priced in an increase in demand after the end of the current Covid-19 wave in the northern hemisphere.

The benchmark futures contract fell 0.2% to $83.11/barrel at 9AM ET (1400 GMT) while the global benchmark dropped 0.3% to $85.78/barrel at $85.78/barrel. 

U.S. gasoline futures fell by 0.1%, to $2.4158 per gallon.

These indicators are now at seven-year highs following a strong rally over the past few weeks. The rally was driven by concerns that world’s largest oil producers may not be able to produce enough to keep up with demand in a recovering economy. In particular, the Organization of Petroleum Exporting Countries is having trouble delivering on its promise to increase output. This has been due to poor management and past underinvestment. Meanwhile, U.S.-based shale oil companies tend to focus more on creating cash flow than investing in production. 

The rally could be ending soon, as there have been signs in recent days. The U.S. Commodity Futures Trading Commission’s position data shows that the ratio between bullish and bearish long contracts is more than 6 to 1, which suggests that a rebalancing may be in order. This multiple was less than four times a month earlier.  

You can also see that at least one short-term problem in the supply chain is improving. Libya, an OPEC country that’s not bound to the current output quota agreement has now returned its daily production level to 1.2 million barrels per day. This was announced by the National Oil Company on Monday. This is an increase of 500,000 barrels per day from the previous month.

Ole Hansen from Saxo Bank is head of commodity research. He stated via Twitter (NYSE 🙂 that technical issues are turning against Brent. Hansen stated via Twitter that a renewed failure to surpass the $33-year high at $86.75 per barrel could lead to a correction to $80.

The market was not moved earlier by China’s December figures showing that China’s industrial production was stronger than anticipated. China’s zero Covid strategy remains the focus. It faces the most difficult challenge since the detection of Omicron variant Covid, a locally transmitted Omicron virus. China usually responds to emerging viruses with severe, cost-cutting restrictions on mobility. This could lead to serious problems for Beijing’s hosting of the Winter Olympics. The games begin in Beijing in just over a month.