06.08.201912:53 Forex Analysis & Reviews: Brent picks the bears

Oil is on the verge of a bearish market as the quotes for futures of the North Sea grade dipped by almost 20% from April highs amid concerns about a surplus increase in 2020. According to OPEC, next year production growth outside the cartel will amount to 2.1 million b/s and growth in global demand will be 1.4 million b/s. A very unpleasant situation for an organization that is trying to control the market. The situation may worsen even more because the escalation of the trade conflict between the US and China is hitting demand for black gold, and the indefatigable appetites of American producers are pushing up the supply.

Oil reacted violently to Donald Trump's statement about the introduction of a 10% tariff on $300 billion of Chinese imports and the fall of the renminbi and a currency manipulator tag issued by the States of the Middle Kingdom. Beijing ceases to buy American agricultural products and threatens to answer with an eye for an eye, a tooth for a tooth on the duties imposed by Washington. Sooner or later, all of these will affect the US economy. Fears for her fate push the yield of treasury bonds downward and contribute to a fall in black gold prices. China and the US are the largest consumers of oil in the world. Hence, the problems of their economies allow the IEA, OPEC and the US Energy Information Administration to lower global demand forecasts.

A shift in the imbalance in the black gold market towards surplus and OPEC's inability to control the situation allow speculators to actively build up short positions. At the end of the week on July 30, they jumped immediately by 50%. The ratio of longs and shorts for oil is currently slightly higher than 3, which is smaller compared to the peak in July 2018.

The dynamics of the ratio of speculative positions in oil

Thus, if a week ago, investors were weighing what would become a more serious driver of price changes either blocking the Strait of Hormuz or increasing shale production in the United States. Now, the bears are pulling the rope. Their opponents have little hope that the 8th consecutive fall in US black gold reserves will allow them to win back part of the losses, but this would not be a Pyrrhic victory.

It must be admitted that Donald Trump with his attack on China, which, according to the Wall Street Journal insider, is not supported by the American administration except the president himself, can kill two birds with one stone. The escalation of the trade war is weakening the dollar due to expectations of lower federal funds rates. At the same time, it contributes to a drop in oil prices, and the owner of the White House has repeatedly stated that he would like to see Brent and WTI lower than they are currently quoted.

It must be admitted that Donald Trump with his attack on China. According to the Wall Street Journal insider can kill two birds with one stone, which is not supported by the American administration except the president himself. he escalation of the trade war is weakening the dollar due to expectations of lower federal funds rates. At the same time, it contributes to a drop in oil prices, and the owner of the White House has repeatedly stated that he would like to see Brent and WTI lower than they are currently quoted.

Technically, quotes moving beyond the triangle and breaking through support at $61.35 per barrel increased the risks of activating the harmonious trading pattern AB = CD. If this happens (the bears will be able to rewrite the June low), the North Sea variety may go down to $54, where the target is 161.8% AB = CD.

Brent daily chart