Energy and currency market between the end of 2021 and the beginning of 2022

Changes in energy and currency market between the end of 2021 and the beginning of 2022 rank highly important among economists, including traders and investors. There is no doubt that many economic, political and geographical factors have significantly affected both the financial, business and energy markets. The late of 2021 had many global changes and economic crisis that have overshadowed energy, currency and trading markets in general. Today we’ll take a peek at the period from the end of 2021 to the beginning of 2022 and what energy forecasts like oil have brought to promising sectors in 2022. 

The geopolitical conflicts of 2021 cast a shadow and threaten 2022 

  • Libyan conflict 

As everyone knows, the outbreak of the Libyan war has affected the global oil market. Late December 2021, it was the most threatened, due to election chaos and adversely affecting oil production and exports.  Libya declared a state of force majeure over its oil exports, because three of the largest oil fields were destroyed. The financial crises have also had an impact, with the Libyan Petroleum Corporation declining to increase oil production to 1.5 million barrels per day during the current year. As a result, oil production fell to 729, 000 barrels per day. 

  • Ukrainian-Russian conflict 

According to analysts and observers of the dispute between the two countries, the current situation had affected energy markets and would lead to higher oil prices and lower gas exports from Russia to Europe. However, the completion of the Nord Stream 2 pipeline in mid-2021, (which extended under the Baltic Sea into Germany), allowed Russia to bypass Ukraine, supplying the European energy market. 

  • Yemen's crisis with the Gulf 

It’s not a secret that the Gulf market has been affected by the conflict in Yemen because the Gulf countries have entered the war against the Houthis. Everyone has certainly heard about the recent attack on Abu Dhabi, which caused fires to explode 3 oil tankers near storage facilities belonging to state oil company ADNOC. Recent tensions in the Gulf have also resulted in oil prices rising at their highest levels in 7 years. Brent crude futures rose to $87.51 per barrel, and West Texas crude futures settled at $85.43 per barrel, the highest level since October 2014. 

High expectations of a rise in global energy demand in 2022 

We’ve noted a strong recovery in global energy demand in the past year, coinciding with the reduction of restrictions and actions announced by countries to confront the Corona pandemic. Demand is also expected to rise further in 2022, with the International Energy Agency expecting global oil demand to rise by 3.3 million barrels per day to 99.5 million barrels per day in 2022. That’s why we are back to the previous record recorded in 2019 before the epidemic. The Agency was also more likely than not to be affected by the rise of Omicron, and global demand will continue to rise during 2022. 

On the other hand, prospects confirm the world's dependence on fossil fuels, despite its damage, and its resistance to efforts to address the climate crisis. In contrast, the use of this fuel has been replaced by large investments in electric vehicles and renewable energy, as well as cleaner fuels. OPEC also expects to increase demand for oil around the world this year, led by: China, India and the United States. 

Prices at the beginning of 2022 

In terms of prices, analysts estimate that Brent mix prices will average $85 per barrel by 2022. This is due to low levels of stockpiles, as well as weak productive capacities. 

In a recent research note, JPMorgan Chase warned that the price of Brent crude would be $125 per barrel in 2022, and $150 by 2023. This is because OPEC doesn’t have the strength to respond to high prices, as many investors assume. 

Winning sectors in 2022 

Turning back a little, we note how the stock sectors that were the biggest losers in 2020 jumped to the biggest winners in 2021. On the other hand, the highest-value companies in the previous year recorded returns ranging from average to bad. 

Moving to sectors, there are 10 sectors in the S & P 500 index: 

  • Information technology. 

  • Health care. 

  • Financial sector. 

  • Consumer rating. 

  • Communications services. 

  • Industries. 

  • Consumer goods. 

  • Power. 

  • Facilities. 

  • Real estate. 

For the biggest loser for 2020, it was the Energy sector, falling by 35%. However, it provided investors with a massive 53% gain for 2021. 

Nevertheless, analysts continue their expectations for winning sectors for next year, and Bank of America has launched its forecast that energy and money stocks will surpass the market in 2022. This will require both sectors to replicate what they achieved from 2021, when the energy sector took first place and the financial sector placed third with a 36 percent return. In contrast, Bank of America and Charles Schwab predicted that healthcare stocks would surpass the S & P 500 index in 2022. 

In the end, the question for individual investors is not whether analysts' predictions and expectations are correct or wrong, but:  should they think of sectoral investment at all from the beginning! 

Author: GC
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