Stephen Innes
SPI Asset Management
Oil prices remain buoyed by a softer inflation profile hence the expectation of a more moderate Fed. However, both benchmarks are trading off overnight highs as investors debate the pre-Lunar Chinese New Year boost to jet fuel and physical quotas (according to a physical broker in Singapore) against the post-Lunar Covid Tsunami and a likely drop off in mobility. Although only a transitory factor in the eventual economic climb from a state of demand destruction in China, uncertainty surrounding new infection rates could prove to be a short-term rally capper
China's reopening should be a key support factor; we expect prices to remain range bound through the early part of this year, followed by a moderate lift in Q2 as demand in China and Europe begins to recover. At the same time, the risk-reward is not as compelling as we move up the price ladder as it was in the low $70 (Brent). But based on an expected recovery in domestic demand in China and minimal global supply growth when the global cyclical turns back up, the market will again be faced with low inventories, inelastic supply, and higher oil prices (Brent $100).
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