Market wrap: Will oil prices rise before Christmas?

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The cost of living in Australia has risen considerably over the past two years with several waves of COVID-19 causing widespread lockdowns, supply chain issues and delays. This has seen demand outstrip supply causing costs to soar and prices to rise.

One area that has been hit the hardest is energy costs with petrol and the cost of filling up your car rising to unprecedented levels.

As we know, the price of fuel is linked to oil prices, so the question that needs to be answered is will oil prices rise or fall into Christmas and the new year. At the risk of being a two-handed economist, I don't believe oil prices will rise but I also don't believe they will fall very much.

will oil prices rise before christmas

Most experts are predicting oil to be around $80 a barrel in 2022, which is where it is now. The challenge with being more precise about what will happen is the unpredictability of COVID-19 with more lockdowns expected around the world, which could see supply outstrip demand as oil producers can't just turn on and off the tap like we do in the garden.

If this occurs prices will fall, that said if things settle and demand increases, we will see prices stay high for a while longer while oil producers ramp up supply.

The news is not all bad, as the charts show that the price of oil should fall for a short period early to mid-2022, which could see oil back below $70 a barrel and possibly as low as $50 a barrel. However, there are a lot of variables and as we are in unprecedented times, anything could occur that would affect this.

Due to the issues around the world at present, the energy sector has not done well in 2021 although I expect it will do much better in 2022. That said, I don't expect the opportunities will come from oil companies.

The best and worst performing sectors this week

The best-performing sectors include Materials up more than 3% followed by Utilities up more than 2% and Energy up more than 1%.

The worst performing sectors include Information Technology down more than 3% followed by Financials down more than 1% and Communication Services down just under 1%.

The best performers in the S&P/ASX top 100 stocks include Fortescue Resources up more than 15% followed by Mineral Resources up more than 10% and Rio Tinto up more than 7%.

The worst-performing stocks include Evolution Mining down more than 8% followed by AMP and Wisetech Global, which are both down more than 7%.

What's next for the Australian share market

You would think with BHP, RIO and Fortescue all up strongly that the All-Ordinaries Index would also be trending up, however, as I have previously mentioned the Financial and Materials sectors generally determine the direction of our market and, once again, both sectors have moved in opposite directions this week.

In the past 26 trading days, the Australian market has fallen 1.5-1.9% on three occasions and risen more than 2% on two occasions and as at the close on Thursday, it has only moved up nine points in price.

As such, it is obvious that the market is struggling to find a direction and is displaying a real lack of confidence with neither the bulls nor the bears wanting to commit to a move.

Technically this week is a down week given that on Monday the All Ordinaries Index traded below the low of the prior week. Right now, it would be good if the market moved down for one or two weeks, as this means it will be stronger in 2022.

As such, I would not be surprised to see the All Ordinaries Index fall away up to 5% more than the next few weeks before rising up into February. Despite the uncertainty in the market continuing, right now it would pay to be cautious before buying any stocks, as you may be buying just before they fall away.

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Dale Gillham is chief analyst for Wealth Within (AFSL 226347). He has an Advanced Diploma and Diploma of Share Trading and Investment and more than 25 years' experience in the financial services industry.