02.06.202013:56 Forex Analysis & Reviews: Oil needs a compromise

May has become a real holiday for oil. The Texas grade added about 88% to its value, which was the best result in the history of WTI futures contracts since 1983. Things were no worse for Brent, whose quotes doubled in 6 weeks and reached the highest level since the beginning of March. The post-lockdown opening and recovery of the world's major economies, growth in global demand, and reduced production were the catalyst for the black gold rally. "Bears" are forced to adjust forecasts. Thus, Deutsche Bank raised its estimates for the end of 2020 for WTI from $ 32 to $ 37, for Brent - from $ 35 to $ 40 per barrel.

According to Bloomberg, there is a fleet of tankers off the coast of China with about 4 million tons of oil from Russia, Colombia, Brazil, Angola, and other countries. The rapid economic recovery of the Middle Kingdom requires energy, and the refineries are working at full capacity. Similar processes began to occur in the United States, which, according to the US Energy Information Administration, increased imports of black gold from Saudi Arabia from 0.6 million b/d to 1.6 million b/d, from all countries of the world – by 40% to 7.2 million b/d in the week to May 22.

At the same time, production in the United States is falling. Over the same period, it was reported to have decreased by 1.6 million b/d to 11.4 million b/d, although the data may be subject to adjustment. BofA Merrill estimates that the overall size of the decline in production in the US and Canada in May was 2.5 million b/d.

Dynamics of American oil production

Of course, the increase in prices may lead to the resumption of American production in the previous volumes, however, due to the reduction in the scale of drilling, shale producers face serious problems, which allows us to forecast a further reduction in the surplus and oil reserves in the US.

OPEC+ contributes to the improvement of market conditions. And what else! By the end of May, the volume of commitments to reduce production was fulfilled by 77%. Only Iraq and Nigeria failed. Black gold production by the cartel fell by 5.84 million b/d to 24.6 million b/d, the lowest level since 2002. For Saudi Arabia, the figures look like 2.89 million b/d and 8.7 million b/d. Russia produced 9.39 million b/d, and exports of Urals oil by sea fell to the bottom over the past 5 years.

At the OPEC+ summit scheduled for June 4, Riyadh intends to push the idea of maintaining the current volume of production cuts of 9.7 million b/d until the end of 2020. Let me remind you that at the previous meeting, the countries decided to reduce the figure to 7.7 million b/d from June to December. Moscow is likely to defend this option, and the market hopes for a compromise: for example, the figure will remain until September at 9.7 million b/d, in October-December, it will decrease to 7.7 million b/d. In any case, no one expects a repeat of the history of the oil war between Saudi Arabia and Russia. Both sides are aware of their consequences for the entire market and their own budgets. This circumstance allows us to continue to increase the Brent longs formed from the levels of $ 25.75 and $ 28 per barrel with targets of $ 45.5 and $ 50.5.

Technically, the "shark" pattern remains relevant on the daily chart of the North Sea variety. Its target of 88.6% corresponds to the level of $ 50.5 per barrel.

Brent, the daily chart