09.10.201900:50 Forex Analysis & Reviews: Oil geopolitics is not scary

The end of the automobile season in the United States and the trade wars set the direction for the current movement of oil prices. Black gold reacts to events in Saudi Arabia, Iraq and Ecuador by a temporary rise in quotations, however, these factors quickly recoup, and the initiative returns to the hands of the "bears". Having examined the current oil market conditions by bones, speculators are not tired of reducing their net "bullish" positions. As of October 1, combined Brent and WTI longs fell to 388710 futures and options contracts. This is the smallest figure since February.

The dynamics of speculative positions by WTI

These are modern realities: geopolitics scare investors for only a short time. So it was with the seizure by Iran of tankers in the Strait of Hormuz, with an attack on industrial facilities in Saudi Arabia. This is now happening with mass protests in northern Iraq. The second producer of OPEC has the main facilities in the south. In particular, there is the port of Basra, through which 3.5 million bpd passes. This, by the way, is 95% of the indicator throughout the country. As for the problems with supplies from Ecuador due to the political crisis inside this state, this is a drop in the ocean. Statistical error (Quito speaks of losses of 59.45 thousand bpd), which can be neglected.

Obviously, the main reason for the closure of Brent and WTI in the red zone for two consecutive quarters is the fear of a slowdown in global demand. Even the loss of speed by American mining and the willingness of Saudi Arabia and Russia to stabilize the market by reducing production do not frighten the "bears" of black gold. Following the slowdown in China's GDP growth and the growing risks of a recession in Germany's economy, the negative began to come from the United States, where business activity in the manufacturing sector collapsed to its lowest level in the last decade. The US is beginning to feel the pain of trade wars, and oil cannot remain insensitive to the troubles of one of its largest consumers.

A strong role in the bearish trend in Brent and WTI is played by a strong dollar. Contrary to weak statistics from purchasing managers and the rise in the likelihood of a federal funds rate cut in October from 40% to almost 90%, the USD index remains stable. It is helped by the uncertainty surrounding the Washington-Beijing trade negotiations and the associated high demand for safe haven assets. If after a meeting on October 9-10, the United States does not want to raise tariffs or cancel part of them, strengthening the global risk appetite can become a serious catalyst for the rally of black gold. On the contrary, the escalation of the conflict will inflict another blow on the positions of the bulls on Brent and will increase the risks of continuing the downward course in the direction of $47-47.5 per barrel.

Technically, we are talking about a target of 161.8% according to the AB = CD pattern. To return to the game, the "bulls" need to attack resistance at $58.8 (Pivot level). Success in this event will increase the chances of oil buyers to correct to $62.2-62.7 per barrel.