27.09.201701:54 Forex Analysis & Reviews: Brent made friends with the Kurds

For a long time, the oil market was balancing between the reduction of OPEC production and the expansion of US production while oil prices rose. As soon as a new driver appeared in the form of a referendum on the independence of Kurdistan, the quotes of Brent soared to a 26-month high. After counting almost 3 million votes, 93% of the participants expressed their support for the region to go its own way, different from Iraq. The reaction of Turkey, which has a lot of highly active Kurds, followed immediately. Istanbul is ready to shut down the cranes and not allow oil from northern Iraq to the port of Ceyhan on the Mediterranean Sea. We are talking about 500-600 thousand bpd, which, together with 1.8 million bpd cuts from OPEC, create a solid foundation for further decline in global reserves and rising prices.

Bloomberg estimates that black gold exports from Kurdistan this year rose from 515,000 to 583,600 bpd. The resource base is about 45 billion barrels, and production is 544,600 bpd. However, in case independence is gained, the region is ready to increase it to 602 thousand bpd. You have to first find new markets and supply chains because the intentions of Turkey to block the pipeline does not look like a joke.

It is curious that the speculators foresaw a similar scenario of events and increased their net long positions on Brent to the maximum mark since March, according to WTI. The growth of net longs by the end of the week by September 19 on the first grade amounted to 8% (up to 464,980 futures and options contracts), on the second it is 32% (to 208,292 contracts).

Dynamics of speculative positions for Brent and WTI

Source: Bloomberg.

The referendum on the independence of Kurdistan gave the prices acceleration, while the general background of the oil market can be called moderately optimistic. According to the forecasts of the International Energy Agency, global demand will grow faster than previously expected, world reserves will decline, and the restart of US refineries after hurricanes will increase the demand for black gold in the States. And in the market, it is increasingly possible to hear conversations that OPEC has achieved its goal while the activity of drillers in the US has reached its peak. Bears for Brent and WTI will only cling to the forecasts of the Energy Information Administration which indicated that the production of shale oil in October will grow for the 10th month in a row, as well as for the strengthening of the US dollar.

The Fed is trying in every possible way to persuade the markets to implement their own plans, which envisage four federal funds rate increases by the end of 2018. William Dudley, the influential official of the Federal Reserve Bank of New York, said that the slowing of inflation is temporary, and the impact of hurricanes on US GDP can be ignored. The chances of the December monetary restriction are kept at the level of 72-73%, which supports the dollar.

Technically, Brent very quickly reached the upper limit of the upward trading channel and the target by 161.8% on the AB = CD pattern. Currently, there is a logical rollback in the implementation of the pattern 80-20. In order for "bears" to count on the development of correction, they need to storm the support at $ 58.25 and $ 57.35 per barrel.

Brent, daily chart