25.05.202115:32 Forex Analysis & Reviews: Oil gathers strength

Any topic gets boring sooner or later. Recently, the oil market has become fixated with the matter of whether, thanks to the United States, China, and Europe, the restoration of global demand for black gold will outweigh the factor of the sad epidemiological situation in India and other Asian countries. And then the news of the talks between the United States and Iran over a nuclear deal similar to 2015, which is fraught with the lifting of sanctions against Tehran and an increase in oil production, falls into the focus of investors' attention. Why not step aside from the main topic for a while and discuss local news?

The fact that Iran matters can be seen in the market reaction to messages from the country itself. As soon as its president, Hassan Rouhani, announced that the main issues on the nuclear deal had been settled, Brent had its worst weekly performance in the past month. Still, as US Secretary of State Antony Blinken pointed out that there is no indication that Tehran is ready to meet nuclear commitments, the North Sea variety has posted its best two-day gain since March.

According to Bloomberg estimates, Iran can increase its black gold production from the current 2.4 million b/d to 4 million b/d. The question is, how fast? And will growing global demand absorb this volume of production? According to Deutsche Bank, if Tehran activates production in the third quarter, the market may be in surplus (excluding the Iranian factor, the bank estimates the deficit at 1.2 million b/d), which will negatively affect prices. If it is in the fourth, it will not create problems for the Brent bulls. Goldman Sachs believes that lifting restrictions on oil imports from Iran will not stop them, and predicts the growth of quotes of the North Sea grade to $80 per barrel.

Interestingly, additional Iranian black gold could be swallowed up by China. Almost alone. The introduction by Beijing of a fee on incoming flows for bitumen mixtures, light cycle oil, and mixed aromatic hydrocarbons, which are often used to produce low-quality fuels, will most likely lead to a search for alternatives and an increase in oil imports from China.

Dynamics of Chinese imports of light cycle oil

Positive news from the U.S., where, thanks to accelerated vaccination (almost 50% of Americans received one dose of vaccines against COVID-19, both - almost 40%), rapid economic growth is expected. And from Europe, where traffic on highways in Spain and France was close to levels of 2019, serve Brent customers faithfully.

Traffic dynamics on highways in Spain

In my opinion, the longer negotiations on the lifting of sanctions against Iran continue, the later additional barrels from this country will begin to flow to the world market. The more likely it is that the growing global demand will absorb them, and Brent will be able to continue its rally towards $80 per barrel.

Technically, there is a Splash and Shelf pattern on the daily chart of the North Sea variety. A breakout of the upper border of the consolidation range of $62.25-$69.95 will serve as a signal to open longs and increase the risks of target implementation by 200% for AB=CD. It is located near the $82 mark per barrel.

Brent, Daily chart