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Oil prices are down 1.7%, trading around $91 a barrel, ahead of the resumption of indirect talks between the United States and Iran. If both nations reach an agreement, the deal could return more than 1 million barrels per day (bpd) of Iranian oil to the market, equating to more than 1% of global supply. The extra supply is likely to take steam out of the oil rally. However given the current underinvestment in the energy sector, stricter ESG related issues, and strong global demand, the extra-supply is likely to be more of a short term relief rather than a headwind to oil prices in the medium-term.

Oil starts the year strong, posting a gain of 14.5% for the month of January. The futures price on Brent Crude is trading lower this morning, around USD88.30 as investors are cautiously waiting for tomorrow’s OPEC+ meeting. The organization is expected to continue with its monthly increase, another 400,000 barrel-a-day, in output for March. However, there have been signs lately that the alliance is struggling to meet its production target in full. Some Wall Street analysts warn of a possible announcement of additional supply tomorrow, but remain bullish overall; tighter global market and geopolitical concerns over Ukraine are likely to support oil prices this year. Moreover, Texas is facing an Arctic blast this week that may freeze oil production activities, potentially causing another supply shock in the short term.

Energy prices are rocketing higher since the bottom of the pandemic area. Demand is very strong on the back of the rapid recovery in global economic activity, and in contrast supply is suffering from years long underinvestment in oil exploration and production. Adding to that the recent rising geopolitical tensions between US and Europe with an important oil exporter, Russia, leads Wall Street analysts and other energy institutions to expect supply to remain tight in coming years. Furthermore, the current low open interest on Brent indicates that the price of oil could very likely move higher.

US inflation rate came at 7% yesterday, that is 7% erosion in purchasing power since December 2020! In these inflationary periods, one effective way to hedge against inflation is through investment in real assets, like commodities. The Bloomberg commodities index (ticker: DJP), a broadly diversified basket of energy, grains, industrials and precious metals, and life stocks, had a stellar performance in 2021. The ETF outperformed the S&P 500 last year, yielding 31% return. As it is expected that inflation will remain above 3% through 2022, commodities are very likely to continue to outperform. Moreover, weaker US dollar and increasing geopolitical uncertainties have always pushed prices of this asset class higher.

Oil prices were down more than 1% to below $76 a barrel, reversing gains from the previous session, as the US is expected to announce Tuesday a release of its emergency oil reserves in a bid to lower high prices. The move will be coordinated with other countries including China, Japan, and India which are allegedly working on ways to release national crude oil reserves.