29.05.201813:43 Forex Analysis & Reviews: Brent restores the status quo

The oil market decided to correct it due to information about the intentions of Russia and Saudi Arabia to increase production by 1 million b / s. Speculators began to record profits on record net long-term losses due to fears that OPEC and other member countries of the Vienna agreement are not satisfied with the current conjuncture of the black gold market, which allows US producers to actively increase the number of drilling rigs (+15 per week by May 25, to 859, the maximum mark for 3 years) and production volumes (+ 27% for 2 years, up to 10.73 million b / s, the second result in the world).

In 2014-2017, investors often used the term "shale price band". It was in the range of $ 40-55 per barrel for WTI and represented a kind of breakeven zone for American producers. With the former value of black gold, US shale companies could not meet the growing global demand (+1.7 million bbl per year from 2014), which led to a reduction in world reserves and to the growth of Brent and WTI. The Vienna agreement of OPEC acted as a kind of airbag for "bulls".

Dynamics of Brent and OPEC oil production

The reasons for Moscow's announcement that Russia and Saudi Arabia will consider the gradual recovery of production in June may be different. Someone says that they are on the sidelines of Donald Trump, who not so long ago said that OPEC artificially raises the price of oil. Someone believes that a similar tactic will narrow the spread of Brent and WTI. Indeed, due to cheaper black gold, the States are gradually squeezing out their competitors from Asia, and Riyadh cannot like it. Finally, changing the outlook of the participants in the Vienna agreement can only be a way to restore the status quo. For a long time, oil grew due to rumors about the impact of economic sanctions on production in Iran and Venezuela. In 2016-2018 the production of OPEC oil decreased by 713 thousand b / s. At the same time, the figure for Caracas fell by 718 thousand b / s. If Tehran also reduces production, then the holy place is never empty. It will be taken by others.

In my opinion, in the market, there is a usual fixation of profit on speculative long positions on the background of OPEC's alleged reluctance to prolong the Vienna agreement beyond 2018. In fact, according to Goldman Sachs, history shows that the message about the growth of the cartel's production usually led to a short-term decline price, but then they added an average of 8% over the next two months. The bank is still optimistic about Brent and sees the North Sea grade on average at $ 82.5 per barrel in the third quarter of 2018.

Technically, on the daily Brent chart, the pattern "Splash and U-turn with acceleration" takes place. While the quotes did not fall below $ 70 per barrel (the trend line of the introductory stage and simultaneously the lower limit of the upward trading channel), the situation is under the control of the bulls. Rollbacks make sense to use to form long positions.

Brent, the daily chart