Last week, the price of Brent crude ended the week at $70.14 after closing the previous week at $71.60. The price of WTI ended the week at $66.22 after closing the previous week at $68.17. Also, as we have been forecasting, the Brent-WTI differential widened to $3.92 from the previous week of $3.46.
After the last two weeks during which the price of Brent crude oil declined from above $82.00 to less than $70.00, we are expecting that oil prices will see some recovery this week. However, we think the traders will remain cautious because of the uncertainties associated with COVID-19 and the potential impact on demand. For the eighth straight week, traders of Brent decreased their net long positions and did so by 21% through a decrease in their long positions and an increase in their short positions. Additionally, net long positions pertaining to WTI are now the lowest since early August of this year.
Prior to the recent downturn in oil prices, we held the view that the price of Brent crude was vulnerable at $85.00 because of downward pressure from several factors—increasing supply, strengthening U.S. dollar, declining sentiment of oil traders, plus the rising cases of COVID-19 (even before Omicron). At the current price level, however, we think the market has overreacted and that oil prices will recover. During the first quarter of 2022, we are forecasting that price of Brent crude will average around $80.00 and that the price of WTI will average around $77.00.