13.02.201814:19 Forex Analysis & Reviews: Brent is on the heels of shares

The oil futures marked the worst five-day period in the last 2 years, and only the rebound of US stock indices allowed the bulls to find the ground under the feet of the black gold. Over the past few months, Brent and WTI have confidently moved north due to optimism about improving the health of the global economy and the associated increase in global demand, but a correction in the US stock markets has questioned the effectiveness of the above connection. Especially since the slate mining is not slumbering.

The OPEC raised oil production forecasts in the States by 0.15 million b / s, to 1.3 million b / s in 2018, adding that it is the US that is the main threat to the bulls for Brent and WTI, because they form the majority of increase in the aggregate indicator (+1.4 million b / s). At the same time, the International Energy Agency expressed concern that US companies could disrupt the return of global black gold reserves to the boundaries of their five-year averages. Currently, the difference is 52 million barrels, and over the past year, it has decreased by 80%. In December, global stocks fell at the fastest pace in the last 6 years.

Dynamics of deviation of global stocks from 5-year averages

Source: Bloomberg.

The threat that the States will flood the market with oil, is increasing as the number of drilling rigs increases from Baker Hughes. By the end of the week, by February 9, the indicator increased by 26 and reached the level of 791, the highest since April 2015.

And ye,t the main reason for the panic was the behavior of stock indices, which increased fears for global demand. It is his dynamics that lay a solid foundation for rising trends for Brent and WTI. At the same time, OPEC forecasts an increase in the indicator by 1.59 million, to 98.6 million barrels, and the IEA increased its estimate for 2018 from +1.3 million to +1.4 million b / s. In this regard, the sooner the pullback in the US stock markets ends, the faster the oil prices will recover.

Dynamics of WTI and Dow Jones

Source: Bloomberg.

In this, hedge funds also sincerely believe, only slightly reducing the record net-long. Their cumulative value for the two main grades of black gold still exceeds 1 billion barrels in equivalent, which indicates the hopes of speculators for a quick rebound.

Not the least role in the fate of oil is the dollar, whose positions have become stronger in the light of the growth in the volatility of financial instruments. Strengthening the US currency theoretically makes oil more expensive in the countries-largest consumers, that is, slows down demand. In this respect, investors should closely monitor the release of inflation data in the US in January. A sharp upward spurt of the indicator can provoke a new wave of S & P500 sales, strengthen the dollar and put pressure on black gold.

Technically, after reaching a target of 88.6% for the pattern of the "Shark", the risks of Brent's recoil in the direction of $ 65 per barrel increase. Updating the February low will create prerequisites for the development of a correction to $ 60.

Brent, daily chart