24.03.202013:05 Forex Analysis & Reviews: Oil is looking for allies

When there is a common goal, yesterday's enemy today can become your ally. For a long time, OPEC was at war with the United States for sales markets, tried to cut off the oxygen to American oil producers by lowering prices, and with the help of agreements on production cuts – to stabilize the black gold market, and connected Russia... Unfortunately, the United States did not care, but when the oil war between Riyadh and Moscow began, the White House itself offered its services. Either the United States is not as good as they try to imagine, or with the help of an alliance with one opponent, Washington is trying to remove the second from its path.

Despite a 29% drop in WTI for the week to March 20, which is the worst result since 1991, US companies were able to increase production to 13.1 million b/d. This is a repeat of the record high that took place in February. Such dynamics of the indicator suggests that producers from the States actively using price risk hedging operations are not particularly upset about the collapse of oil futures. Yes, its value has declined more than twice from the levels of January highs, but the losses are compensated by the income received in the derivatives market.

Dynamics of American oil production

According to Parsley Energy estimates, if WTI quotes continue to stay in the area below $25 per barrel, then in the next few weeks, black gold production in the States will decrease by 250-500 thousand b/d. The US Department of Energy asked Congress for money to buy 30 million of the planned 77 million barrels of oil to replenish strategic reserves, and then spread rumors about an alliance between Riyadh and Washington, whose goal is to stabilize the black gold market.

Most recently, Donald Trump demanded that Saudi Arabia and OPEC reduce prices, which usually leads to a drop in the cost of gasoline and to reduce spending by American households, and now offers his services to resolve the conflict to Moscow, then Riyadh. The Kremlin claims that the time has not yet come, and Saudi Arabia is cutting its budget spending by 5% at once.

Meanwhile, Brent and WTI are soaring on the back of a significant monetary stimulus from the Fed and the statement of US Treasury Secretary Steve Mnuchin that the moment of agreement with the Senate on almost $2 trillion in financial assistance to the economy languishing under the influence of coronavirus is already close. At the same time, the People's Bank of China claims that victory over the epidemic will soon be achieved, and the economy of the Middle Kingdom is ready to embark on a V-shaped recovery. If so, combined with cheap liquidity from the Federal Reserve and a potential agreement between Washington and Riyadh, this could change the rules of the game in the oil market.

Technically, the "bears" for Brent do not give up trying to reduce quotes to the target of 113% for the "Butterfly" pattern (it is located near $20 per barrel), but a successful assault on the resistance at $31 and $36.6 can inspire their opponents to new attacks, the goal of which is a full-scale correction in the direction of 23.6%, 38.2% and 50% of the last downward wave.

Brent, the daily chart