• Heightened geopolitical tensions in eastern Europe has pushed crude oil price into the overbought zone.
  • The unproductive call between President Biden and President Putin on Saturday has escalated investors’ concerns. 
  • A Russian attack would yield disruptions in an oil market that is already tight.

Geopolitics

The Russia-Ukraine conflict has been a key bullish driver of crude oil price in recent weeks. Notably, recent events have placed the commodity an inch closer to the bulls’ target of $100 per barrel. 

The oil market is exceptionally tight as OPEC+ continues to struggle with quotas the agreed upon earlier. Dwindling stockpiles at Cushing, the pricing and distribution point for WTI oil, has worsened the situation. 

In the past weekly oil inventories data released by the US Energy Information Administration (EIA), stockpiles at the storage facility dropped by 2.801 million barrels, the largest draw since October 2021. Russia is the third-largest oil producer in the world.  As such, any disruption in its exports will likely push crude oil prices closer to a three-digit level.  

On Friday, US officials warned that Russia might attack Ukraine in the coming days. It has surrounded Ukraine from three sides with sophisticated weaponry and 130,000 troops. Besides, Saturday’s call between President Putin and President Biden did not bear fruits.

Interestingly, the Russian president has maintained that he does not intend to attack Ukraine. In fact, a few days ago, French President Emmanuel Macron stated that Putin assured him that he wouldn’t escalate the Ukrainian crisis. 

Supply/demand dynamics

The heightened geopolitical tensions in eastern Europe have been reported amidst growing supply/demand imbalance. Last year, OPEC+ decided to gradually increase production by 400,000 bpd as economies recover from the coronavirus pandemic and global oil demand rises. Nonetheless, the organization is over 1 million bpd shy of the set target. Investors are concerned about the alliance’s ability to increase production to the pre-pandemic levels. 

In the OPEC monthly report, the alliance noted that key oil consumers within the Organization for Economic Cooperation and Development have had their stockpiles fall by 2.72 billion barrels in January. This is a significant draw compared to December’s decline of 31.2 million barrels. The inventories are 210 million barrels lower than the 5-year average and 311 million barrels below that of December 2020. 

On the demand side, the International Energy Agency (IEA) forecasts a significant rise in global oil consumption. The situation will likely heighten the supply/demand imbalance and subsequently boost the crude oil price. According to the agency’s recent report, oil demand is expected to surge by 3.2 million bpd in the current year; hitting a record high of 100.6 million bpd. Nonetheless, its still forecasts a market surplus by year-end.  

Crude oil price prediction

The crude oil price has recorded gains for eight straight weeks amid supply concerns. On Friday, Brent futures rose to a fresh 2014 high at 95.65 before pulling back to end the week at 94.94. Since the beginning of 2022, it has soared by about 21.71%. In the current month, it has already risen by 6.30%. 

On a four-hour chart, it has entered the overbought territory with an RSI of 70. Besides, it is trading above the 50 and 200-day exponential moving averages. In the new week, crude oil price will likely extend its gains amid the heightened Russia-Ukraine tensions. 

Brent oil may hover around 95.00 as the bulls gather enough momentum to reach the next target at 97. On the lower side, the 50-day EMA of 91.25 will be a support level worth looking out for. Even with the probable pullback, I expect crude oil price to remain above the 200-day EMA at 86.85. 

The Brent Crude CFDs 4-hour price chart