15.10.201912:55 Forex Analysis & Reviews: Oil does not believe in a truce

While investors are arguing whether it is worth considering the results of the Chinese delegation's visit to Washington as a de-escalation of the US-China trade conflict, oil gives a clear answer – no. Donald Trump has decided to shelve the idea of raising tariffs from 25% to 30% by $250 billion of Chinese imports, but most duties continue to operate, the global economy slows down, and the growth rate of global demand for commodities falls. Brent and WTI quotes are declining, and the largest producers of black gold in the face of Vitol, Trafigura and Gunvor (these companies account for 15% of world supplies or about 14 million b/s) predict that both grades will continue to trade lower at a 12-month time horizon, both grades will continue to trade below $60 per barrel.

Attempts by OPEC Secretary-General Mohammad Barkindo to charge the market with optimism look like a desire to put a good face on a bad game. According to the authoritative official, the growth of shale production in the US is slowing, and the cartel and Russia will do everything possible to stabilize the market in 2020. The group known as OPEC+ agreed to reduce production by 1.2 million b/s, and its next summit, at which the agreement can be extended, will be held on December 5-6. Speculators do not believe Barkindo. By the end of the week to October 8, they increased their short positions on WTI by 47%.

Dynamics of oil prices and speculative positions on WTI

For a long time, the oil market was in a state of tug of war between OPEC reducing production and increasing its American producers. However, the factor of decline in global demand growth under the influence of trade wars and slowing global GDP swung the scales towards the "bears" on Brent and WTI. Spikes in geopolitical tensions in the form of attacks on Saudi Arabia's manufacturing sector or tankers in the Strait of Hormuz only lead to temporary price increases. This proves that the situation is under the control of sellers. Moreover, according to Bloomberg experts, American oil reserves will continue to increase for the fifth week in a row. At the end of the five days by October 11, they are likely to increase by 3.1 million barrels.

The dynamics of US oil reserves

Not the least role in the formation of "bearish" market conditions of black gold plays the US dollar. Neither Donald Trump's desire to drown him, nor the Fed's reduction in the federal funds rate, nor the fall in Treasury yields make the US currency throw a white flag. It takes advantage of the weakness of its main competitors and the consistently high demand for safe-haven assets due to the prevailing uncertainty in the market. Since oil is quoted in dollars, the growth of the USD index leads to a fall in the quotations of Brent and WTI.

Technically, while the North Sea variety holds above $57.35 per barrel, the bulls still have chances to develop medium-term consolidation in the range of $57-67. A successful storm of support at $57-57.35 will increase the risks of activating the AB=CD pattern. Its target of 161.8% is located near the level of $47 per barrel.

Brent, the daily chart