16.07.201914:17 Forex Analysis & Reviews: Brent on the eve of war

The oil market sighed with relief after it became known that the tropical hurricane Barry did not cause much harm to the companies operating in the Gulf of Mexico. This region accounts for about 16% of the black gold production in the United States. Also, the fact that about 74% of the oil-producing and refining companies have been closed, it has driven Brent's quotes to its highest levels since the end of May. The gradual return of the Gulf of Mexico to its normal functioning, as well as the slowdown of China's economy to 6.2% in the second quarter, made bulls in both varieties take profits. Also, the unpleasant news from the IEA, which reported global growth, contributed to it.

According to estimates by the US Energy Information Administration, the volume of shale production in the United States in August will increase by 49 thousand b/d to a record of 8.55 million b/s, which is the main bearish driver in the black gold market along with the trade wars and the associated slowdown in global demand. However, WTI is growing faster than shares of US energy companies, which indicates the unwillingness of shareholders to spend money on the expansion of production. This is confirmed by the fall of drilling rigs from Baker Hughes and with the fifth consecutive reduction in US oil reserves. According to a consensus estimate of Bloomberg experts, the figure will drop by 2.75 million barrels by the end of the week by July 15. This allows the bulls in Brent and WTI to be confident.

Dynamics of oil and stocks of US energy companies

Moreover, the conflict in the Middle East can turn into a real war at any time. Also, the agreement of OPEC and other countries of producers keeps global stocks from growing.

Production dynamics of OPEC, US, and Iranian exports

If Tehran overlaps the Strait of Hormuz, black gold will soar by $ 15-20 per barrel at the moment, according to the American consulting company, Rapidan. But then, speculators will begin to take profits amid expectations of the introduction of US troops into the region. The second peak will follow the first peak, hence, the dynamics of Brent and WTI will resemble the letter "M". With regard to the potential price increases, it should be made dependent on the duration of the conflict. A week-long standoff between the United States and Iran will drive up prices for the North Sea variety to $80-90 per barrel. Three-digit numbers will become a reality if the conflict drags on for a month or more.

The US dollar plays an important role in the fate of oil. At first glance, the Fed's intention to ease monetary policy and Donald Trump's verbal interventions should have put an end to the uptrend in the USD index. Nevertheless, the world economy is in a state of a currency war, when the central banks-competitors of the Federal Reserve weaken monetary policy, which then contributes to the devaluation of their own monetary units and keeps the "American" from falling.

Technically, updating the July highs with the subsequent successful assault of resistance at $68.45 per barrel activates the Crab pattern with a target of 161.8% of XA wave. It corresponds to $77.5.

Brent daily chart