The crude oil price retreated on Wednesday after the latest US inventories data and as investors took profits after a spectacular rally. Brent, the global benchmark, declined by 0.45% to $80.70 while the West Texas Intermediate (WTI) fell to $76.72. Still, the two prices have rallied by more than 25% from the lowest level in August this year.

Oil demand rising

The crude oil price has recently rallied because of the ongoing demand and supply imbalance in the market.

Global demand for oil prices has risen substantially in the past few months as the global economy reopens. Indeed, many countries have already eased their restrictions and many people are still travelling as they did before. 

At the same time, the aviation industry has rebounded in the past few months, although activity remains below where it was before the pandemic started. The aviation sector is a major consumer of oil.

Recent reports have shown that oil demand will keep rising in the coming year. An ambitious report by the Paris-based International Energy Agency (IEA) showed that demand will soar to more than 100.8 million barrels per day in 2022. This will be a stronger figure than where demand was before the pandemic started.

Another report by OPEC showed that demand will continue rising in the coming months as well. Meanwhile, the Energy Information Administration (EIA) showed that demand will keep rising to more than 101 million per day in 2021.

Demand and supply imbalance

While demand is rising quicker than expected, supplies have been relatively limited. The OPEC+ cartel concluded its virtual meeting this week. The members decided to maintain the status quo as they attempted to push prices higher.

The meeting concluded that they will continue boosting supplies in the coming months. However, the pace of increase will be lower than what most analysts were expecting. Precisely, the cartel will boost production by about 400k barrels per month until the fourth quarter of 2022. The Biden administration has called for the cartel to increase production substantially in the past few days.

Therefore, in these conditions, the main hope for oil supplies would be the United States. However, recent data shows that oil producers are not ramping up production as they once did. According to Reuters, the US is producing about 11.3 million barrels of oil every day. This is more than 2 million barrels less than what they produced in 2019.

There is a likelihood that shale producers will not ramp up production in the near term. In an interview this week, the CEO of Pioneer Natural Resources said that shale producers will use the new windfall to boost payouts to investors instead of funding new drilling. This was a notable statement since Pioneer is the biggest producer in the Permian Basin. It produces more than 360k barrels of oil per day.

Meanwhile, data published on Wednesday showed that oil inventories came in at more than 2.34 million barrels last week. This was a bigger increase compared to the expected drawdown of more than 1 million barrels.

Brent crude oil price forecast

The four-hour chart shows that the Brent crude oil price has been in a major bullish trend in the recent months. The price managed to move above the key resistance levels at $77.86 and $80 this week. It is now dropping as bears target the key resistance at $77.86. Also, it remains above the 25-day and 50-day moving averages while the MACD has moved above the neutral level. Therefore, the price of crude oil will likely keep rising as long as it is above the moving average.

Brent crude oil price technical chart