22.10.201913:44 Forex Analysis & Reviews: Oil "bulls" do not favor

Strange things are happening in the oil market! With many "bullish" drivers, Brent and WTI quotes do not grow, but consolidate, while speculators are not tired of increasing short positions in black gold. According to the results of the week, by October 15, net longs for the Texas variety fell to 86,530 contracts, which is the lowest level since the beginning of January. Rates on price cuts have almost tripled since mid-September, which triggered a WTI drop of about 20%. But from fundamental analysis, you cannot say that "bears" dominate the market.

OPEC, Russia and other manufacturing countries adhere to their plans to reduce production by 1.2 million b/d and are ready to extend the terms of the agreement in early December. American sanctions against Iran have significantly reduced exports from this country: up to 2 million b/d as to the moon in April 2018. The political crisis in Venezuela led to a drop in production to 644 thousand b/d, which is 1.3 million b/d less than two years ago. If we add to this the tense geopolitical situation in the Middle East, including attacks on tankers in the Strait of Hormuz and on production facilities in Saudi Arabia, then the natural question arises, why is Brent not growing towards at least $80 per barrel?

Perhaps the Americans are not tired of increasing production? No, its dynamics are gradually deteriorating. This forced Goldman Sachs to reduce its growth forecasts from 1 million b/d to 0.7 million b/d in 2020. According to Bloomberg Economics, the reasons for the "bearish" oil market conditions should be sought in demand, not in supply. 70% of the blame for the fall in prices is due to trade wars and slowing global demand, and only 30% – with supplies.

Dynamics and structure of changes in oil prices

Indeed, the IMF in October lowered its forecast for global economic growth to 3%, which is the worst dynamics in a decade, and the IEA – estimates of growth in demand for black gold. American oil reserves are increasing for the second week in a row and, according to Bloomberg experts, will continue to do so at the end of the five days by October 18.

What about the fact that after the talks in Washington, investors believe in a de-escalation of the trade conflict between the US and China – the main culprit of slowing global demand for black gold? According to estimates of the International Monetary Fund, if current tariffs remain in force, this will reduce the growth of global GDP by 0.6% points in 2020. Since the trade conflict has hit business activity and investment, the abolition of tariffs will not be enough for the world economy to quickly regain its lost ground.

Technically, the current consolidation of Brent is quite capable of expanding to the range of $55–62 per barrel. A breakthrough in its upper boundary will create the prerequisites for the implementation of the reversal pattern "Wolfe Waves" with an initial target of $68.2. On the contrary, updating the August low and activating the AB = CD model will increase the risks of falling prices to its target by 161.8%. It corresponds to the mark of $47.1.

Brent, the daily chart