02.05.201801:43 Forex Analysis & Reviews: Brent received dirt

Neither the dollar rising from the ashes, nor an increase in the number of drilling rigs from Baker Hughes to a three-year high, nor an increase in US production to 10.264 million bpd can bring down the bulls of Brent and WTI. On the market, the topic of long-term investors' participation in the formation of a record net oil long has been discussed. The idea is this: at the end of the economic cycle, the assets of the commodity market tend to look better than shares. If the latter are concerned about the normalization of the monetary policy of the Fed, the former receive preferences from the outstripping dynamics of global demand over aggregate supplies.

Despite the fact that US mining companies enjoy a favorable situation in the black gold market, and many do not like it (some countries participating in the agreement on the reduction of production, together with OPEC and Russia say that it would be nice to stabilize the price at current levels and prevent it from growing higher), leveling the amount of global oil reserves with their 5-year averages shows that OPEC celebrates the victory in the war of the cartel and shale producers from the US. At the same time, the increase in global demand for 5 million bpd over the last 3 years is the driver that allowed Brent to rise to $75 per barrel.

The greatest role in the continuation of the northern trend of both varieties of black gold is played by geopolitics. The conflict between Saudi Arabia and Iran, the problems with supplies from Venezuela and Libya, and the renewal of Western sanctions against Iran is a hot topic. Israel has stated that there is a compromising evidence on this in the Middle Eastern country, which makes it possible to prove that Tehran's nuclear program is continuing. They just changed the sign. I do not think that this will somehow change Donald Trump's worldview, which will make its verdict at the beginning of the second decade of May. The resumption of US sanctions increases the risks of reducing oil supplies from the region by an amount equivalent to 200-500 thousand bpd.

As for the strong dollar, the bulls for oil should not be feared too much. The "Greenback" is growing due to an growth in the chances of four increases in the federal funds rate in 2018, from 32% in early April to the current 47-48% and an increase in yield of 10-year US Treasury bonds in the direction of 3%. At the same time, a strong correlation between the rates of the US debt market and black gold allows us to state that the potential of the upward movement for Brent and WTI is far from being disclosed.

Dynamics of oil and yield of US bonds

Thus, the completion of the economic cycle, the strong demand associated with it and the balance between the growth of American production and the reduction in production by OPEC and Russia create the foundation for the continuation of the northern oil trend. However, the resumption of Western sanctions against Iran may lead to a correction due to the implementation of the principle "buy on the rumor - sell on facts".

Technically, on the daily chart of Brent, there is consolidation in the range of 72.9-75.65. Prior to the target, 161.8% of the AB = CD pattern is within reach, and then the rollback risks will increase.

Brent, daily chart