24.07.201900:51 Forex Analysis & Reviews: Brent under the hood at the White House

While investors continue to digest information about Iran's seizure of a British tanker in the Strait of Hormuz, North Sea oil has stabilized near $62-63 per barrel. According to Commerzbank, the premium for the risk of vessels passing through the strait is significantly lower than it should have been, which indicates the underestimation of Brent. UBS, on the contrary, notes that, despite all the incidents in the Middle East, no significant supply disruption occurred. The supply is stable, the demand due to trade tensions between the US and China risks decreasing, which makes the black gold market situation moderately bearish.

Even with the serious collapse of the levels of the April highs, Brent has grown by 17% since the beginning of the year. At the same time, the statement by the IEA that, despite the agreement of OPEC and other producing countries, there is a surplus in the oil market, limits the desire of the bulls to attack. The slowdown in global demand due to trade wars and the growth of US production are considered as well-working trump cards of the "bears".

Tensions in the Middle East should be on the side of their opponents. The Strait of Hormuz carries one third of the world's oil by sea and approximately one fifth of all global supplies. Iran has repeatedly threatened to block it, which could potentially hurt the proposal. However, as long as threats do not go further. In addition, Donald Trump said that Tehran is ready for negotiations, which somewhat reassured investors. At least, the oil's response to a smaller reduction in US reserves in the week to July 12, than what was predicted by Bloomberg experts, turned out to be more turbulent than the news of Iran's seizure of a British tanker.

Dynamics of American oil reserves

It is not difficult to understand the reasons why the White House is calm. According to research by the US Energy Information Administration, three-quarters of the oil and condensate that passed through the Strait of Hormuz in 2018 went to China, Japan, India, South Korea and Singapore. Let these countries take care of their safety. As it turned out, the market can be reassured by a statement about Iran's readiness to negotiate. At the same time, threats about the expansion of the US military contingent in the region trigger "bulls" to attack. Donald Trump has repeatedly stated his desire to see low oil prices, so he prefers not to heighten the situation.

One gets the feeling that the black gold market is under the cover of Washington. Even the fact that the number of Baker Hughes drilling rigs continues to fall indicates that US manufacturers are quite satisfied with current prices. They hedged the risks of reducing the cost of oil with the help of futures contracts and can now safely increase production.

Dynamics of drilling rigs and oil prices

Technically, Brent quotes outside the triangle may clarify the medium-term prospects of the North Sea variety. In particular, a breakthrough of support at $61.35 per barrel will raise the risks of activating the AB = CD pattern with a target of 161.8%. It corresponds to $54.2.