17.03.202013:16 Forex Analysis & Reviews: Oil invites you to hunt

Due to rumors about the appearance of hunters for cheap assets and information about US purchases of oil for strategic reserves, the rebound of Brent and WTI from the levels of multi-year lows is unlikely to seriously scare the "bears". The oil market in 2020 risks facing the most serious loss of demand and the largest deficit in the history of its existence. At the same time, Saudi Arabia's intention to increase production to 12 million b/d and Aramco's statement that the company feels comfortable with prices at $30 per barrel, suggests that the bottom is most likely not yet reached.

According to research by HIS Markit, if the oil war between Riyadh and Moscow continues for several months, the black gold market will have a surplus of 800-1300 million barrels in the first half of the year. We are talking about a new record. The previous one was equal to 360 million barrels. The growth is due to the intention of Saudi Arabia to increase production by 2.6 million b/d, Russia - by 300-500 thousand b/d, as well as a sharp and sudden reduction in global demand. Commerzbank estimates that global demand losses due to coronavirus could easily exceed the 1 million b/d or even 2.65 million b/d that occurred in 2009. The last figure was recorded in 1980 when the world economy fell into recession amid the oil crisis.

Annual dynamics of oil

Donald Trump's decision to buy oil to replenish strategic reserves is a drop in the ocean. In 2011, their volume was 727 million barrels, but since then it has significantly decreased on the back of sales of black gold. According to the forecasts of the consulting company Rystad Energy, filling reserves to the limit will increase global demand by only 200 thousand b/d within three months.

Coronavirus and its associated social isolation do not allow us to expect an increase in the consumption of American households significantly cheaper gasoline. What Donald Trump had hoped for has come true, but it is unlikely to please the US President. On the contrary, his decision to replenish strategic reserves was the result of concern for the fate of American producers of black gold, which, against the background of a sharp decline in capitalization and income, risk facing massive defaults and bankruptcies.

The US stock market was not helped by the aggressive monetary expansion of the Fed, which lowered the rate from 1.75% to 0.25% at two extraordinary meetings and launched a program of quantitative easing for $700 billion. Among investors, there are rumors that the Fed has exhausted its options and is actually out of the game. Who will help the economy if it really falls into a recession? Against this background, the worst fall of the S&P 500 since 1987 looks logical. At the same time, American oil companies were among the main victims.

Technically, if the "bears" for Brent can not stop the resistance of the "bulls" in the area of $28.8-34.4 per barrel, where important pivot levels and a target of 88.6% for the "Bat" pattern are located, the risks of continuing the southern march to the target will increase by 113%. It is located just below the mark of $20 per barrel.

Brent, the daily chart